Christophe De Vusser, partner in Bain & Company’s Brussels office, kicked off the afternoon today with a fresh new angle on why delighting customers can delight investors too.
He gave us a view of how to use NPS to accelerate sales, in the context of private equity firms post-acquisition. The first half of his talk was a great introduction to the mindset of private-equity investors, and how NPS can fit as a strategic tool to build value based on operating fundamentals.
Christophe described the 3 main ways for private equity firms to make money from their investments.
- Increasing leverage
- Improving P to E multiples
- Increasing earnings (either through top line growth, margin improvement, working capital management, or a combination of these)
For the past several years, while money was cheap, most private equity firms were making money using leverage and expansion of P to E multiples. But in the current environment, with debt being harder to come by and multiples being lower, this has focused investors instead back on the core business. Today, they need to demonstrate increased operating value based on the underlying business fundamentals.
This third strategy is not easy to accomplish, but it is now the critical driver for making a return on investments in private equity. Cutting costs is tempting, but this doesn’t typically give the level of returns that investors are looking for. The key, instead, is to demonstrate sustained relative market share growth, and to demonstrate that you have a repeatable growth model to sustain this.
NPS is an excellent tool to accomplish this according to Christophe. It usually starts by demonstrating how a change in NPS (by shifting more customers into the Promoter category), will link to underlying growth, share of wallet, and market share.
Christophe showed several examples of companies that have made this link between NPS and market share growth. One example he gave was of a company that was losing market share relative to its main competitor each year. By implementing an NPS turnaround programme the trend shifted back in favor of the company. They did this by understanding the criticality of showroom design in driving NPS and sales volume. Based on this insight, they invested in re-vamping over 1000 showrooms around the country, allowing them to turn around market share growth relative to their main competitor.
NPS also helps companies decide where to invest internally to get the improvements. If a company wants to invest in sales acceleration, is the right answer to add sales people, to expand advertising, or to take a different approach? What will drive the fastest improvement in NPS and business outcomes?
Christophe showed a compelling analysis of “visit frequency” in a sales environment. They looked at how often sales people had visited each customer and found a very interesting relationship between frequency of visits and the customer’s NPS. Not surprisingly, the salespeople who did not visit got customer NPS values of -35% on average. At one visit this increased to 20% NPS, and with 4 visits the NPS increased further to 56%. Interestingly, when they reached 9 visits, the NPS dropped back to 38%. This insight helped them understand how much additional investment was needed in sales capacity, but also, how to balance frequency of visit and account loads across the sales team.
Knowing the drivers of NPS is key to accomplishing these turnarounds in performance. Private equity investors love this because it is about re-allocating spending within the company instead of having to make additional investments. Christophe stressed the importance of analyzing drivers, not in a vacuum, but relative to competitors.
How do these changes relate to investor returns? As Christophe explained, these fundamental trends in customer buying patterns and relative market position change the assumptions future owners will make when valuing the company. And there’s nothing like that to put a smile on an investor’s face.
Thank you, Christophe, for this fresh new angle on NPS economics.
