Net Promoter Community

Are there economic benefits for Net Promoter? Yes, according to Satmetrix's Dr. Laura Brooks, one of the co-developers of Net Promoter. So what is the economics of Net Promoter?

Well, first, there is measurable economic impact from promoters as well as detractors. Straight to the punch line: On average, the relative economic impact of promoters who recommend is that they bring in additional $565 in revenue and while detractors are responsible for $701 in lost revenue. This is from a sample of B2B software companies. This data was calculated by understanding the number of referrals or negative comments these folks gave.

So promoters bring in more revenue through word of mouth marketing, but they are also a driver of revenue growth while detractors are drivers of lower growth. No surprise here. In addition, promoters total value is much more then detractors. Again, no surprise. What I found most interesting with all these benefits of promoters – they are also have a lower cost to serve. So they cost less and are more filling!

Laura talked about important to amplify promoter community through customer testimonials, inner circles, and special communities to further cement the relationship. While there is a lot of attention given to detractors by most customers it is the smart companies are also figuring out how to leverage these promoters through the power of Word of Mouth.

The last word on economics is that committed Net Promoter companies see financial gains. On average, with B2B companies studied, they experienced 23% revenue growth over a 3 year time frame, with an average 9% gain in Net Promoter.

What I wonder, with data like this, why aren’t all companies using Net Promoter?

In the Net Promoter community, 68% of companies aspire to be customer centric but only 15% achieve this goal based upon research Satmetrix (co-developer of Net Promoter with Fred Reichheld and Bain & Company) recently conducted with over 100 companies in the community. This aspiration is why there is so much interest in the Net Promoter conferences, stated Henry Jones, Satmetrix's Director of Business Consulting, EMEA, in his talk.

Companies that exhibit best practices around the Net Promoter discipline see results. In this case, the winners, as he called them, were seeing high NPS with an average 3-year revenue growth of 50%. Their winners were intensely customer-centric, had executive engagement and delivered a superior customer experience. Sleepers did not.

The winner companies all scored the highest in the four key areas of the Net Promoter Discipline and Satmetrix Maturity Assessment Model. This included executive commitment and actions, organizational commitment from all employees, system infrastructure of a trustworthy data collection and delivery system and business process integration.

So what are the challenges Henry asks? First, it's getting executives to put their money where their mouth is. CEOs state they are customer centric but still need proof points to act. These proof points are out there as we have seen at the conference and documented in the conference blogs. The next challenge is getting organization to get employees to have the behavior that generates the right customer experience. This is best done by rewarding employees financially who have the right customer-centric behavior.

The last point Henry makes is to be sure you have a closed-loop tactical feedback system in place. This is where we get feedback information into the business and act on this in a way so that the customer sees results. There are proof points that show by focusing on the key areas of the discipline, you will get results like IBM, GE, Phillips, Lego and other companies that presented their case studies.

Ask Bernhard Klein Wassink, Senior Vice President, Global Marketing, GE Real Estate: "Why did GE Real Estate embark on the NP journey in 2005, when they have tripled their net income over the last 5 years?"

Well to start, Bernhard quotes GE CEO Jeff Immelt: "NPS is the best formula I've seen in my career here, and I want everybody here to get on board." This is seen as the next wave at GE, following other successes like Six Sigma.

So does GE Real Estate have a business problem?

Well, no, but they see factors that are affecting their business like globalization, mergers and acquisitions, and tons of liquidity. One thing they said for sure is that while they are global, their customers are local. Reputation and local relationships are key. And growing these relationships is the most important factor to overcoming the above problems.

GE has achieved results with their program - but how did they get there?

They accomplished it with the tried and true "Listen - Act - Grow." First, they listened with a telephone interview. Immediately after they collect this feedback, they act with a "detractor alert" email and quickly follow up. This email includes both email and audio from the call. What was interesting is that the audio files are even more compelling than the written response. Through this process, they have taken multiple detractor calls and turned then into new deals - a common NP story. But this is an operational approach.

Being GE, they also take an analytical look at the data. To do this, GE Real Estate asks other questions in their live interviews so they can conduct a driver analysis to see what factors such as speed and delivering on the promise impact the NP score. This approach allows them to focus on areas that will drive long term improvements, like products, business processes, etc. They have also learned the five key drivers of deal experience which account for 70% of the NPS variance. This helps them prioritize goals and focus on the right actions.

But this is not the whole program. There is also a communication plan to customers, internal and external. Internally, these are one and one and group reviews. "NPS Day", is an internal meeting where awards are given out and all employees are invited. These types of meetings are making a difference. Employees are learning that what they do is important to customers and their actions do have impact.

With customers, they are communicating through customer testimonial ads, customer events, and through the press, Bernhard states. But the main conclusion is that customer and prospects hear value - and that GE's brand has improved in customer perception since it started its Net Promoter program in 2005.

So does this result in growth? Bernhard gave some numbers around new business. This has accelerated for GE Real Estate lately (196% of goal). Bernhard would guess that perhaps $3-4 billion of new business volume (out of $25.5 billion) in 2006 could be attributed to the Net Promoter Score! Bernhard backs this up by the fact that for everything GE does, they have to put a business case together. They need to understand how the program works -  whether they were new customers or existing. They are still learning, so they still have a large margin of error on the estimate.

But in any case, they are getting results and growth!

Click here to download the presentation.

Richard Owen, CEO of Satmetrix, the co-developer of Net Promoter, kicked off the presentations by talking about Net Promoter and the value to your business. He talked about why Net Promoter is taking off.

Richard presented four reasons that are driving the adoption of NP:

• Shift to service economies
• Shortcomings in public accounting
• The high rate of CRM failure, and
• The Reinvention of marketing.

(And all in 45 minutes)

The first big topic that Richard covered is the shift to service economies.

When farmers started to celebrate birthdays for their kids, they used ingredients they had on the farm to make a cake. Eggs, milk, etc. Cost? About 5 cents. As people moved off the farms they went to the store and bought the same ingredients for about a dollar. But people wanted further convenience, so they bought cake mix (about 2 dollars). But more convenience was desired, so they go to the bakery and can pay up to 50 dollars for the same cake containing about 5 cents worth of ingredients – this is the definition of the full-service economy. But this is not the end – parents want a better experience for their kids, so they take their kids to entertainment places with pizza, games and the cake thrown in. Total cost? Over 200 dollars. The point is that advanced nations have moved from manufacturing to an experienced-based economy. Services are where the vast majority of value is being created. This leads to customer experience as a differentiator and why NP is important. The point is that value creation is becoming harder and harder. Operational efficiencies like inventory control are not a source of value creation any more. Long term value creation is now around the customer.

The next topic was the shortcomings in public accounting.

Accounting is not sexy. But accounting has profound impact on how a company does business. If customer metrics were as important as financial metrics then CEOs would be held accountable- but they are not. And compensation does drive behavior. In this case, short term profits vs. investing in long-term customer value creation.

This is why is NP compelling as it offers an open standard. It is compelling for marketing as well as financial organizations. With NP as an open standard you can optimize your business around financial performance and customer performance.

The next topic that Richard covered is the high rate of CRM failure.

Companies are spending billions on CRM, but companies do not know anything about their customers. This is because CRM is an inside-out view – what they have bought, when they bought it, etc. NP is a complement to CRM since it provides an outside-in view that is predictive and forward looking.

One of the failures of around CRM is adoption. NP can aid CRM adoption since it provides a valuable tool to your sales team. Just ask any account manager if knowing his Net Promoter scores of his decision makers and influencers for his next big deal would be valuable!

The last topic that Richard covered is the Reinvention of Marketing.

Advertising is in trouble – he gave the example of Digital Video Recorder ownership having increased to 20% of US households. Of these households, 70% skip commercials. Reaching your customers is getting harder and harder.

On the flip side, blogs have taken off. Your customers are talking about you. Wikipedia, RSS, podcasting, etc. are all growing. People want to be heard! What used to be frustrated letters to the CEO and phone calls to support are now being played out on YouTube. The suggestion box on the CEO’s door is now being done in public. These public sources are influencing opinion. Facebook has 90% of the student population in the US, MySpace has 57 million members, networking, open source technology. All of this is Word of Mouth marketing, positive and negative.

Bad PR from these online communities can negate million dollars of marketing spend. Marketing’s response is to spend more on marketing tricks, not on improving the customer experience. If you do not respond by focusing on customer experience you will lose in the end.

WOM is taking off and NP is one of the ways to get your arms around this phenomenon. The other point Richard got across is that Marketing does not know the efficiency of their spend. Interesting, since marketing efficiency is going down.

All of these things add up to why Net Promoter is taking off. The last reason he gave is that Net Promoter is an open standard. It is this openness that will drive its success at being adopted by a wider community.