Last week, I talked about how important it was to build advocates for your company. Advocates are easier to upsell, they buy more and they spread good word of mouth. On the other hand, detractors use up resources, are hard to please and most likely spread negative word of mouth. I suggested that one of the ways you can avoid creating detractors is to focus on good profits and avoid bad profits. Bad profits are the kind of revenue that leaves your customer feeling like they were taken advantage of – service charges, change fees and termination fees.
The crucial question is how many of your customers are advocates and how many are detractors. Fred Reichheld points us to the Net Promoter Score (NPS). He states that there is only one question that you need to ask of your current customers: Would you recommend us to a friend? The question probes both dimensions of loyalty; satisfaction with the product or service and satisfaction with company values. A score of 8-10 is a promoter, 6 & 7 are neutral and less than 6 is a detractor. Using the formula:
P-D = NPS
You will be able to measure your Net Promoter Score. This score will allow you to see the relationship between profitability and NPS. A crude segmentation mapping might look something like the one below.
You can then map your customers to this grid and get a good idea of who your profitable customers are. Now that you are armed with this data, what can you do with it as a company. I will explore this idea more fully in the next post.
Are you using this type of research in your company? If so, I would love to hear how you apply it to your business decisions?
[tags] Net Promoter Score, Fred Reichheld, Advocacy [/tags]
Are your customers advocates? Are they detractors? Are your customers so fanatical that they will tattoo the name of your company on their body? Consider this: An advocate has more repeat purchases, is easier to up sell, gives referrals and can offer constructive feedback on your products and services.
Given the above facts, it would seem that a company would ignore its current customers at its' own peril. It costs six times more to acquire a new customer than it does to keep an existing customer. At the same time, a 5% increase in customer loyalty increases the lifetime profits of a customer by 95%. Investing in building loyal customers is an investment in profitable growth. The best companies do not leave loyalty to chance – they design it into their processes, culture and brand.
How does one go about building advocates? Similar to Maslow's hierarchy of needs, you must fulfill customers most basic needs before you can promote them to advocates. The chart belows illustrates an example of a customer's needs in a fictional service industry.
As you can see, you cannot build advocates if you do not fill the most basic needs of customers: quality control, billing, customer service. Once you have perfected the basics, you can begin to build loyalty. In this diagram, which is geared towards a service model, exceptional service delivered well or ordinary service delivered exceptionally will build loyalty.
What does your company do to build loyalty? Is it an important part of your business plan?
[tags]advocacy, customer service, loyalty [/tags]
ReadyTalk won the 2007 Colorado Biz Magazine Best Place to Work contest for small to medium sized companies.
For the second year, ColoradoBiz has joined with the Colorado State Council of the Society of Human Resource Management and Jobing.com, an online employment advertising service, to produce a list of the best companies to work for in the state.
You can read the entire article here. I have been working at ReadyTalk for nearly three years now and it has been a pleasure the whole time. I will leave you with a quote from our CEO Dan King taken from the article which I think sums up our success nicely.
"It's important for us to have a good understanding of the culture we want and hire around it and have continuity over time."
[tags] Coloradobiz, ReadyTalk, Best Places To Work, COSHRM [/tags]