Bengaluru: What’s the key customer metric that Flipkart, India’s largest e-commerce firm, obsessed over in its early years, then overlooked in favour of the hardly more tangible measure of gross sales in 2015 and which is now back in vogue?
It’s net promoter score (NPS), a measure that indicates the loyalty of a firm’s customers and the overall quality of its service. The term was coined by Fred Reichheld, a fellow at management consultancy Bain & Co, in an article published in the Harvard Business Review in 2003.
The calculation of NPS is based on one simple question to consumers: what is the likelihood that you will recommend the company to a friend on a scale of one to 10? The consumers who rate the company nine and 10 are considered promoters or loyal customers who will keep buying from a company; those who mark seven and eight are called passives, customers who are satisfied but can be wooed away by a rival business easily; those who mark the company less than six are considered detractors, who are unlikely to return to make repurchases.
NPS is the difference between the percentage of promoters and percentage of detractors.
NPS is thus looked at as an overall indicator of the vague term “customer experience”—it is a gauge of a company’s popularity with customers and a proxy for the quality of its service.
That’s why NPS is important for a company like Flipkart, which built its brand on the sheer quality of its service, then lost that service edge to Amazon relatively, and is now trying to regain its past glory.
In an interview to Mint on 23 May, Flipkart chief executive Binny Bansal indicated the company is focussing obsessively on improving its NPS. His implication was that if NPS is high, sales growth will automatically follow.
Mint reported on 9 August that Flipkart has set before itself three goals to accomplish by next month, one of them being an achieving an NPS of 55. Currently, the company’s NPS is around 30 or 50, depending on how it is measured and who you speak with.
Some industry experts, however, dispute the efficacy of NPS as it does not reflect actual sales. For instance, Apple Inc may have a high NPS in India because of an extremely loyal customer base, but iPhone sales recently saw a sharp drop in the country.
“NPS does not reflect the growth of the business by any means. Given that online retail is still very nascent in India, new customer acquisition has to be the name of the game in online retail and NPS plays very little role in that. The situation of the Indian market is such that people still need to be enticed to shop online with discounts and marketing,” said Mrigank Gutgutia, engagement manager at RedSeer Consulting.
“If look at Amazon, they talk about their obsession about customer. So, Amazon has been an NPS focused company. While that has played a role in their success, a big part of their success can be attributed to how they were able to give discounts, how they were able to give advertisements on a continuous basis etc,” he added.
Flipkart, Snapdeal and Amazon did not respond to e-mail seeking comments on their NPS. According to industry experts, NPS of some of the bigger home-grown consumer Internet businesses could be between 20 and 35.
According to experts, NPS works better for an individual brand than an online marketplace such as Flipkart or Snapdeal, which struggle to exercise control over the quality of goods because of their large seller base. Consequently, a bad order delivered will hurt the NPS for a marketplace.
Besides, customer feedback varies on what point in time in a sale cycle is the survey taken. For instance, a customer may feel more positively about a purchase one day after receiving it, compared with say, 15 days later. In such cases, NPS can dramatically differ.
“NPS is a widely accepted metric across industries, however NPS alone as the key metric may not be appropriate in E-tailing. For a market place platform, whether a customer will act as a promoter is a difficult question since many a time loyalty is at a category level only where the customer is actively recommending the platform. A platform can provide a buying experience, but, if the usage experience goes wrong, then the marketplace takes a hit. Customer satisfaction index across categories and cities would be a key metric to follow in today’s world. NPS alone as a metric may work for a single brand, but E-tailers need to look at other complimenting matrices as well,” said Sreedhar Prasad, partner at KPMG India.