Richard's and Laura's Blog

Part Two: You DO NOT talk about NPS (The Five Laws of NPS)

info@netpromoter.com — Wed, 10 Aug 2011 15:57:36 GMT

“The second rule of Fight Club is: you DO NOT talk about Fight Club!” - Tyler Durden, Fight Club

The Second Law of Net Promoter is “You MUST talk about NPS!”

Well, maybe not, but not far off. Actually, it’s more like “you must act immediately on customer feedback”. This is a little unkind because everyone acts, to some degree, on customer feedback. And “immediately” is quite subjective, isn’t it? But it's the spirit of the second law that we should focus on.

If you asked people what they least liked about taking surveys, they might come up with:

“Too long. I successfully cultivated a small stalactite cave while filling in the answers”
“Stupid questions they should know the answer to already. Did I stay in a hotel that they are asking me to rate? If I didn’t it was an amazing lucky guess on their part”

But, in the context of this blog:

“What’s the point?”

Sure, we say we are grateful for their feedback. But we don’t reciprocate. Worse, we have trained people to expect nothing, so why should they invest in us? In ancient times, before 140 character limits meant something to a writer (yes I’m that old) researchers would gather data by making lots of phone calls. Consumers would welcome these calls, as this coincided with a low point in domestic culinary expertise and the decline of quality TV journalism, so having your dinner or TV show interrupted by a stranger was a welcome break. How the hours would fly by, helping the hapless researcher (for it is they) understand exactly why we could use a firmer door latch on our Frigidaire Rollermatic. We would end the call confident that our opinions would be represented in the form of a detailed annual report that, in a pinnacle of decisive momentum, the CEO of the firm would pound the table demanding action or heads would roll!

This never happened.

In reality, we have systematized the lack of serious action around customer feedback. Not through deliberate neglect, although I’m sure there are cases where this happens, but partly through process, and partly through the genuine difficulty in making the kind of hard decisions customer feedback entails. The process problem stemmed from the original, research driven goal of voice of the customer data. Even in a good research process, the transmission mechanism from feedback to action is too slow and disconnected for your average customer to perceive. In an era where systems respond within minutes, or days, these processes often are simply too slow. Watching the Google+ beta in action show us just how incredibly responsive a company can be to making changes in their product in response to feedback – in close to real time. That’s the kind of bar that we have trained social media era customers to expect.

Data gathering and analysis – along with the insights that come out of it – is well designed to turn a big ship slowly in very deliberate and well reasoned moves. Customers want instant gratification.

The good news is this: customers are still so impressed with a company that indicates any responsiveness to their survey input that they will forgive much of the lack of content in the response. In other words, you can still get points for trying! Of course, this is not my prescription. If you don't have a plan to respond rapidly - hours or days, not months - with some kind of indication of learning, you are probably best not asking for feedback at all. But absent a good answer, at least provide evidence that you are listening. It's respectful at the very least.

This will change. As systems become more responsive, expectations will adjust. The other day, I sent an enquiry for a demo to salesforce.com. Now, we are already a customer, so this should have set off a whole series of interesting actions - and it did. Within an hour I had a voicemail and email from a sales rep making sure I had what I needed. If companies can be that responsive to a sales opportunity, we had all better be ready to be that responsive to feedback.

P.S. note from the year 2015 to myself in 2011: being hyper-vigilant and hyper-responsive to tweets but un-responsive to solicited feedback didn't sit well with customers in the long run.

The Disgruntled Traveller

info@netpromoter.com — Thu, 26 May 2011 13:52:18 GMT

A math quiz for my 11 year old son:

It is 419 miles from San Francisco airport to Las Vegas airport. And 2 miles from Las Vegas airport, terminal 2, to your hotel room. If the average speed of a Boeing 737 is 560 mph in cruise, and your average walking speed is 3 mph, how long will the total journey take?

Of course, it’s a trick question. The answer is, ALL NIGHT.

If you could walk from the terminal at Las Vegas to your hotel room, without being roadkill, it would only take you 40 minutes. Of course, you can’t do that. The airport planners, car rental companies and hotels work to ensure that, when Southwest airlines proudly announces that “the safest part of your journey is over” as they land, they could also add “the shortest part of your journey is over”.

Las Vegas, like many airports, has constructed a “consolidated rental car facility” which they proudly announced was “for your convenience”. This is great news, as I had been thinking that having the car rental facility within a short walk of the gate had been very inconvenient in the past. Now it’s located in a neighboring state, Kentucky, and is accessible by a bus ride (see prior postings on airport buses). By the time we arrived, Hertz was doing a cracking trade (at 11:30pm), and required 30 minutes of waiting time before service, during which they processed five other customers at their 3 desks. It’s hard to figure out what people are doing in these situations, but from the safety of the queue a well trained eye can hazard a guess:

The nice elderly couple wearing the “Visit Wisconsin” sweatshirt was negotiating a hostile takeover of Hertz Corporation;

The very young man whose brand of car should have been “Fisher Price” was clearly a mathematics genius building a simulation of his journey to optimize the returned fuel level under multiple traffic scenarios;

The couple at the front of the line was renting a fleet of midsize cars, one at a time. Upholstery choices seemed important to them.

Or something along those lines...

The hotel was not much better. In Vegas, it’s standard practice to provide a DNA scan as part of the check-in procedure, presumably so they can track you down if you dispute the Pringles weight activated sensor in your mini-bar. And yes, I’m still sensitive about the jury’s decision against me on that one last time.

But why is it so hard? What’s slowing us down?

Choice is one factor, information and trust is another.

Southwest Airlines really does understand this. They don’t have complicated offerings. I never have to figure out if I’m flying on a “J” class of ticket so I can understand my upgrade options – although having said that, I don’t even know why I’m asking, I already know the answer. They have a simple solution to a simple problem, moving people safely, cheaply and quickly from one location to another.

I can check in online. Boarding is simple and fast. They will even sell me a place at the front of the line – Business Select, although one such passenger arrived onboard to be shocked by the lack of “first class seats.”

“All seats are First Class” said the flight attendant. Beautiful.

For a de-humanizing process, i.e. flying, Southwest makes it feel, well, almost human and doesn’t make you feel dumb.

Car rental, by comparison, has too much choice, too little information, and too little trust. The eager renter faces difficult options: what class of car do you want? Surely not the same class you selected when you booked online! Is this your current address? Or is, by chance, your address the same address that you entered in your booking under the field “address”? We need to know!

Now for the tricky part. Her face a mask of concern, the agent informs me that I have insurance options. She cryptically adds “in case something goes wrong”. The insurance choices carry names that everyone would instantly recognize if they had a 30-year career in the insurance industry: Loss Damage Waiver for example. And there is a handy, laminated sheet to sub-reference the necessary legal clauses. To reinforce the serious nature of the contract you are entering into, the wall behind the agent has a section devoted to liabilities, and, of course, fuel choices. As usual, I declined the recommendation to take out short term “put” options on an exchange-traded-fund-tracking-light-brent-crude-oil. But keep those Black-Scholes* calculators handy kids!

The plethora of complicated options stems from the complexity of the legal transaction, coupled with the desire of the company to up sell the buyer. But it’s a mess. BMW only offers 2-3 choices of model for a $60k automobile, why do we need to make so many choices for a $100 rental? Choice has value in customer experience, but needs to be handled in a more effective fashion. Simple communication? Online choices to streamline “real time” processes?

Simplicity often wins the customer experience battle. Simple is fast. Simple is clear. Keeping it simple isn’t stupid, it’s hard work, but worth it. Over the last 30 years simple solutions like Southwest, Apple’s iPad, Google or Zappos have been winning the customer experience battle. As consumers, we are trained to believe that complexity is a cover story for bad profits – and often it is.

As I unlocked my rental car, the fellow next to me was taking photos of his rental choice, presumably to document the condition of the car when he took the wheel. He got the message.

*The Black–Scholes model is a mathematical model of a financial market containing certain derivative investment instruments.

How to Win Customers and Influence Buyers

info@netpromoter.com — Wed, 22 Apr 2009 21:59:47 GMT

You may have missed it, but advertising just died. At least, some very credible sources have pronounced the industry dead. And this, as you can imagine, has a lot of people upset.

It's no surprise that in a recession companies are cutting their ad budgets. It's a variable cost so easy to target quickly. If your growth plans just flat-lined (flat IS the new up) then your marketing communication budgets just went the same way. But that's business as usual. The real news is the argument that this is more than just a cyclical change in the business, this is an existential issue. According to some, advertising just doesn't work anymore.

It's widely accepted that advertising is changing format. Internet and search advertising has been eating away at more traditional media for some time. Newspapers are essentially (and practically) going out of business - witness the Hearst group shutting down the Seattle Post-Intelligencer or the Sun-Times Media group filing for bankruptcy. Bob Garfield from Advertising Age (hardly a magazine with no stake in the current model) makes a strong argument for the transformation of the industry.

The conclusions he draws:

Newspapers: dead
Magazines: dead

“Chicken Little, don your hardhat. Nudged by recession, doom has arrived”

Even if Bob does a great job articulating the transformation it's not off the scale on the controversy-o-meter. You could almost argue that this view of transformation has become conventional wisdom. But this month, there were worse prognostications to come.

Prof. Eric Clemons from Wharton really put the cat amongst the pigeons when he made the case for extinction, not transformation.

“The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed,”

Basically, Eric makes the argument that arguing that this is a transformation in delivery is not the point. The point is that nobody wants the package, and nobody is paying attention any more. Of course, this change doesn't happen overnight. Amazon took years to kill the retail book industry; online sales didn't polish off Circuit City for a decade. But once the change is set in motion, there isn't a lot anyone can do to stop it. Inertia in business, entrenched skills and practices all contribute to change being slower than pure business logic might dictate but this is a bandwagon that is gathering steam. The Economist piles on:

“…every business needs revenues—and advertising, it transpires, is not going to provide enough”

in reference to the new dot-com businesses hoping to monetize eyeballs for riches. Eric even goes so far as to disrespect the mighty search engine, describing search engine advertising as "misdirection". Heresy! You mean that search engine optimization is an industry with no future? Search has been the one big success story in internet advertising - really the only business to make any money.

If advertising is getting less and less effective, companies will be forced to face a reality. Not a new reality, but one that has been neatly - if rather inefficiently - bypassed by resorting to comfortable historical choices. Advertising's decline in efficiency drives the relative efficiency of word of mouth, already a source of major advantage for leading firms significantly higher.

We already knew this. Companies like Amazon, Zappos and Starbucks - even Google ironically - grew primarily through word of mouth. Stories of meteoric internet success were usually stories of word of mouth, not examples of companies propelling themselves to success though superbowl advertising (the inverse was usually true). But the status quo persisted. It's easy to point to change aversion, career skills protection as the root cause. But the real change of course was the internet finally giving voice to customers as both an accelerant to great businesses and a compelling alternative to company brand messaging. You no longer own your brand. Your customers own your brand and they are exercising their ownership in full view.

Now some interesting outcomes connect NPS with firms’ word of mouth efforts. NPS really represents word of mouth capacity.

Capacity (economics), the point of production at which a firm or industry's average (or "per-unit") costs begin to rise, usually because some factor is fixed (often capital or land).

Exceed your word of mouth capacity as a business, and your growth needs to be driven by less efficient models - mainly advertising. It's hard to quantify this effect, but the extremes are easy to understand. A business with an NPS of zero has zero word of mouth capacity. The only way it can generate demand is through traditional advertising methods - that represents a very significant P&L disadvantage relative to competitors in its industry with higher NPS. We know that loyalty leaders - in a specific industry - have lower costs and this is one of the sources of that competitive advantage. A company with an NPS of 70% has such a significant capacity that - if they can mobilize it - they won't need advertising at all. Hence, Amazon.

But relative advantage in an industry is not the entire story. We know that some industries are characterized by low NPS - even amongst the best firms. Industries with low NPS winners are likely to be at a profitability disadvantage relative to firms who are competing in industries with high NPS. We would expect high margin industries to have high NPS on average.

There is also a strong argument to be made that higher nominal NPS has a disproportionate effect on word of mouth and demand generation efficiency. In other words, efficiency is not a linear progression as NPS rises. This fits with our intuitive sense of hyper growth associated with NPS leaders.

What drives this nonlinearity? One factor seems to be that promoters in high NPS companies seem to actually advocate for that brand more than promoters in low NPS companies. Vince Nowinski has some data to support this; check out his whitepaper. Why might that be the case? In part it could be social - people enjoy promoting products amongst other positive promoters. The opposite effect could hold true. If you had a great experience with a firm, but everyone around you is negative, you may choose not to advocate, as your sense of personal risk has just gone up. If misery loves company, apparently advocacy does as well.

Oh and remember that traditional advertising industry? Well, it turns out that the efficiency of traditional advertising may, in fact, be tied to NPS. High NPS companies actually get a lift because their advertising message is more likely to be received by promoters, of whom there are more. Once again, this makes intuitive sense. If you are positively predisposed to a brand, you are more likely to be receptive to that brand's message.

Will firms embrace this shift? Necessity is the mother of invention. Either firms evolve, or new entrants will finish them off with a superior, high NPS business model. There seems a lot of that going around right now.