Predicting Customer Sentiment: Why Your NPS Score Isn’t Adding Up
Are you seeing a gap between your Net Promoter Score (NPS) and your actual business performance? Do you believe you understand your business customers’ or consumers’ feelings toward your company, but still see high churn rates
You’re not alone. Increasingly, organizations are discovering that their NPS indices are not reliable indicators of whether their customers will actually renew their contracts. While it’s widely used, the NPS methodology fails to address the complexities of the customer journey and instead relies solely on a performance-driven measure from a single moment in time. Additionally, decision-makers are starting to recognize the missed opportunities that result from an inability to identify and address gaps in customer delivery.
If predicting customer sentiment and behavior is important for your business, then it’s time to explore why your NPS score isn’t adding up.
The Core of the Net Promoter Score Index
To unpack the reasons behind why your actual results aren’t lining up with those predicted by your NPS, we must first understand the measure. Driven by the recognition that customer loyalty is an essential predictor of sustainable growth, many large organizations began relying on a single question to gauge their customers’ satisfaction:
On a scale of 0 to 10 (with 10 being highest), what’s the likelihood that you would recommend us to a friend or colleague?
The answer to this question provides the core metric for developing an organiza-tion’s NPS – a simplified tool for calculating the customer’s overall satisfaction with a company’s product or service. The index ranges from -100 to 100 and is developed by using the percentage of Promoters (scores of 9 or 10), Passives (scores of 7 or 8), and Detractors (scores of 0-6).
The Overlooked Limitations of Net Promoter Scores
Your NPS index may be a helpful first step in understanding customer loyalty, but there are limitations that must be considered – specifically in the inaccurate interpretation of the customer journey and multidimensional nature of long-term relationships.
An increasing number of professionals are recognizing that the core question of the NPS index is flawed. That’s an alarming statement, but think about this: companies with powerful brand recognition and/or few competitors can expect to be in every customer’s consideration set – regardless of how those customers perceive the company or judge its performance. So, asking the likelihood that those customers would recommend your highly recognized brand reveals more about how consumers value familiarity than actual customer sentiment. An enormous disparity may exist between the resulting NPS and actual dissatisfac-tion levels that would be uncovered at a more granular level.
Consider the difference between these two questions:
What’s the likelihood that you’d recommend Bank of America to a friend or colleague?
What’s the likelihood that you’d select Bank of America over other major national banks?
In the first question, customers are very likely to recommend the brand simply because Bank of America is a successful institution with tens of millions of customers across the country. In the second question, the respondent must evaluate their perception of the brand and past experiences to decide whether the bank’s competitors could offer better options.
The NPS index is also limited by the high value it places on measuring transac-tional sentiments in a single moment. If you’re selling a widget as a one-time purchase, this can be an important insight. However, it does little for ongoing B2C relationships, such as an individual and his bank or health insurance company, or B2B relationships that thrive on long-term vendor-client contracts.
Marc Pierce, founder and CEO of Stonegate, explains, “The NPS methodology fails to capture the multidimensional nature of a non-transactional B2C or B2B relationship. True customer sentiment simply can’t be measured by adding up reactions each time a person makes a deposit at his bank or a vendor fulfills a purchase order. The customer’s journey is fluid and cumulative, and perception shifts with every interaction. It can’t be evaluated using a single snapshot.”
Simplified measures most often ask questions solely related to performance, leaving many organizations with an incomplete view of their customers’ needs and company’s ability to deliver. “My company was getting NPS responses of nine and ten, and we thought we knew how our customers felt about us,” says an SVP of Marketing for a major health insurance plan. “But our renewal numbers were declining. When we started using STAMP, we discovered an alarming gap in what we believed to be true and what was actually true with regard to how well we were delivering on our clients’ needs. We started making changes to our customer support processes right away.”
The ‘gap’ between transactional performance scores and the true complexity of customer perception and sentiment can cost your organization hundreds of thousands of dollars (if not more) in lost business.
A Different Approach
New tools for effectively unlocking actionable customer loyalty and perception data, such as Stonegate’s Retention Automation Platform STAMP, have created more efficient and cost-effective ways to gain insight into large-scale trends and individual client needs.
STAMP empowers organizations to systematically analyze what’s most important to their customers, measure performance in key categories, and implement remediation and retention plans – down to the individual client level. The result is significantly improved renewal rates, increased recurring revenue, and maximized customer lifetime values.
While most senior executives fail to place a high value on NPS ratings due to the loose correlation with profits, STAMP metrics drive informed decisions and guide strategies for exponential growth.
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