Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

The common currency of customer-centric firms

Companies need simple, standard systems to measure and track how their customers are responding to their products and services

It is a well-known axiom that customers are the ultimate source of a company’s value. As the competition to capture this value intensifies in India, companies are reaching out to new customers as well as trying to retain increasingly picky and fickle patrons. They need simple, standard systems to measure and track how their customers are responding to their products and services, and then get their front-line to respond to the feedback.

However, even though other assets can be easily valued using standard accounting methods and are reported regularly, customer relationships are often considered intangible. As a result, few companies have developed rigorous mechanisms to assess the value of individual customers.

In its stead, executives trying to understand customers often fall prey to running multiple, long and complex surveys. But do they know which the best survey is? Or how best to interpret the output? For all their efforts, they often end up swimming in a sea of data with no clear insights.

Clearly, there is a need for a simple metric, one that can act as a standard currency across the firm, can be easily benchmarked with competition, leads to immediate and specific action, predicts future outcomes, and correlates to profitable growth.

Can there be just one such metric?

The question is not new. Earlier, when American companies considered quality, the key driver of competitive advantage, Motorola introduced Six Sigma. Defects per million slowly translated into a de facto quality standard, the one number that companies rallied around.

However, as businesses evolve, it is no longer enough to be perfect just at product quality. Customer loyalty is now a key differentiator, and Net Promoter System SM (NPS) is becoming the norm to measure and sustain it. As Peter McCabe, former chief quality officer, GE Healthcare, once said, “I have little doubt that NPS will be as big and long-lasting for GE as Six Sigma was." And NPS has played its part in GE’s strategy.

As a metric, NPS surveys are relatively short and easy to understand, as they replace a series of complex and often confusing questions with one simple question: On a 0-to-10 scale, how likely are you to recommend us to a friend, and what is the primary reason for your score? NPS has also been shown to be the best predictor of customer loyalty. When compared to other metrics, the likelihood to recommend question consistently ranks as the best in terms of correlation with actual customer behaviour (see figure).

More than a metric

However, NPS, like Six Sigma, is more than a metric. It is a set of disciplines for using that metric to understand customers and guide strategy and operations. Companies need to learn these disciplines, not just the metric itself, in order to trace the root cause of a customer’s experience. Uncovering the root cause, which can be a result of your company’s underlying policies, processes, people, culture or even of the expectations you set with your customers, is a journey in itself.

The power of NPS lies in transforming this journey from being product-centric to customer-centric. It starts with an executive reaching out to the customer to understand the reason for his score. The next step is to understand the real drivers of the customer’s concern. Many companies deploying NPS find it useful to use the well-known Five Whys of Total Quality Management, repeating why for each answer until they arrive at the root cause. Since the root cause and the resulting solution are now linked to a complaint originating from the customer, the benefits can be immediately seen.

By using NPS, companies can integrate their front-line with back-end operations. While customer feedback is generated when a front-line employee interacts with the customer, the solution often lies in improving a back-end process. As the group marketing head of a leading Indian business conglomerate said, “What we got as a result (of implementing NPS), is a more empowered organization—an organization where front-line and head-office teams are working closely together and understanding each other’s problems better than earlier."

Most companies have found that NPS fits hand in glove with Six Sigma process improvement efforts. US-based Intuit Inc., the developer of the well-known tax software TurboTax, implemented NPS. A year later, founder and then chief executive officer Scott Cook happily acknowledged that just as Six Sigma had helped Intuit improve its business processes to lower costs and enhance quality, NPS was helping it set priorities and measure progress towards the fundamental goal of stronger customer loyalty.

Over the years, several global leaders—such as American Express, Apple, eBay and Dell—have made NPS a way of life for their business. As companies in India gear up to take advantage of the next wave of growth, it is an opportune time to start working towards achieving true customer loyalty and advocacy.

This is the second in a five-part series on customer loyalty and advocacy.

Sri Rajan is managing director of Bain India. Yaquta Mandviwala is senior principal in Bain India office, and a practitioner in the customer strategy and marketing practice.

Net Promoter® and NPS® are registered trademarks of Bain and Co. Inc., Fred Reichheld and Satmetrix Systems Inc.

Net Promoter System SM and Net Promoter Score SM are trademarks of Bain and Co. Inc., Fred Reichheld and Satmetrix Systems Inc.