The inventors of the Net Promoter Score (NPS) – Fred Reichheld, Bain & Co. and Satmetrix – simplified defining business excellence by asking customers one simple question: How likely would they recommend your company to a friend or colleague based on a scale of 1-10?
Net Promoter Score is based on the fundamental perspective that every company’s customers can be divided into three categories: Promoters, Passives and Detractors.
By asking the question, financial advisors can track these groups and get a clear measure of their company’s performance through their clients’ eyes. Customers’ responses are categorized as follows:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
The formula is straightforward: take the number of customers who love you (Promoters) and subtract the number of customers who don’t like you (Detractors). The resulting number is your “Net Promoter Score.”
The primary purpose of the NPS methodology is to evaluate customer loyalty to a brand or company, not to evaluate their satisfaction with a particular product or transaction. Advisors are encouraged to follow the direct question with an open-ended request for elaboration, soliciting the reasons for a customer’s rating of the company or product. Additional questions can be included to help understand the perception of various products, services, and lines of business. These additional questions can help advisors rate the importance of these other parts of the business in the overall score. This is especially helpful in targeting resources to address issues which most impact the NPS.
While easy to grasp, the NPS metric represents a radical change in the way companies manage customer relationships and organize for growth. Incorporating a Net Promoter system is a management philosophy; a way of running a business. Rather than relying on ineffective customer satisfaction surveys, Net Promoter companies commit to specific processes and systems which help everyone focus on earning the loyalty of both customers and employees.
The business payoffs are said to be substantial. Loyal customers stay longer, spend more, contribute suggestions and sing your company’s praises to friends and colleagues. A Nielsen Ratings study shows a personal referral is the most trusted form of advertisement for 90 percent of the people surveyed. In addition, you have loyal, passionate employees who love their job and are working hard to make the company better.
According to netpromoter.com, the NPS is more than just a numbers game. Net Promoter programs are not traditional customer satisfaction programs and simply measuring your NPS does not lead to success. Financial advisors must follow an associated discipline to actually drive improvements in customer loyalty and enable profitable growth.
Implementing a Net Promoter System isn’t easy and it isn’t for everybody. The Net Promoter approach defines the cultural values and core economics which affect every aspect of a company’s business system and competitive strategy. According to the founders, the most successful companies work hard on all eight elements and they try hard to live up to the Golden Rule values which are the system’s foundation.
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