David Hankin, Director of Business Consulting for Satmetrix, discussed how and why organizations should benchmark their Net Promoter Scores against their competition and account for cultural differences. Competitive benchmarking helps executives answer the question, "How do I know if we have a good NPS?" There are three approaches to competitive benchmarking that can answer this question:
1) add competitor questions to your own loyalty survey,
2) use an external industry benchmark and
3) build your own panel of customers across your industry.
Each option has different costs, benefits and complexities.
The first, and simplest, approach is to include some questions about competitors in your loyalty survey. This is easy to deploy quickly, and can be done at a low cost. One key consideration is to carefully word the questions to make sure the respondent has had recent experience with your competitor. The other is to realize that your customers may not represent the total universe of your competitors' customers. However, the approach can provide directional, or relative, performance of your company in the market compared to your competitors. Clearly, this can be valuable information.
The second approach is to work with an external industry benchmark provided by a third party. The way this works is that competitors in a market space agree to provide their customer loyalty data, confidentially and in aggregate, to the third party so that all of the market players can view low, high and average Net Promoter Scores for their industry. Competitive gaps also can be included, which enables the participants to view the effectiveness of their differentiation strategies, or perhaps, develop new strategies. The third party ensures confidentiality. Satmetrix provides several of these types of benchmarks, most notably in Software and Telecommunications industries.
It is important in this approach to identify the companies included in the benchmark. In some industries, one or more large companies refuse to participate in the benchmark and thus lower the value of the benchmark itself.
The third option is rent or build your own competitive panel, but be warned, costs are high. Costs per completed interview can run over $50 each to get the right sample base. The key is to make sure that a representative sample base can be acquired, because without the right sample, your insights from the competitive assessment may be off the mark. If done correctly, building a panel of your competitor's customers can be an incredibly powerful method to compare Net Promoter Scores and identify opportunities to differentiate.David also discussed the impact of cultural differences on survey scores, and their implications.
Cultural bias can be easily understood as the different way a respondent may score the same survey based on where they live. According to the Satmetrix cross-cultural benchmark, people in Latin-America typically will report higher Net Promoter Scores than people located in some areas of Asia. However, organizations should be very careful of overstating cross-cultural biases. Adjusting the Net Promoter model is not recommended; i.e., avoid the temptation to make 8's promoters, or 6's passive in certain regions. In line with the general theme we have heard during the Net Promoter conference, David described how important it is to track the rate of improvements to NPS, rather than comparing the baseline Net Promoter Scores across regions.
David's final topic discussed how to set NPS targets and goals. The first step is to identify achievable targets based on your internal NPS and external industry benchmark. Not all industries are the same. For example, the Satmetrix benchmark shows that the average NPS in Telecommunications is lower than the lowest NPS in Financial Services. Customer expectations and competitive pressures vary by industry, and this is reflected in NPS ranges.
There is also a law of diminishing returns that shows the higher your NPS, the harder it is to make large percentage improvements. It is important to understand where your NPS baseline exists today, and what a good improvement in NPS would like. Targets can then be set which are achievable and will lead to significant growth.
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