When satisfied customers leave.

Prior to the big market meltdown last year, I met with a friend who is a financial advisor. He was distracted and upset. Earlier that morning he had lost a long term client.

"I didn't see this coming," he said. "We were making good progress. I thought she was satisfied."

It would have been of little comfort for my advisor friend to know that his client may well have seen "satisfied" but left anyway. This is a common occurrence. Businesses strive for satisfied customers but when they think they've reached that elusive goal they find mere satisfaction is not enough to generate loyalty.

Clients who tell us they are simply satisfied mean we have met the minimal threshold for gaining at least some business. While not unhappy with the service they receive, they are not delighted with it either. This means your relationship is far from secure. Clients who are merely satisfied can leave you for any number of reasons as they are easily swayed by competitive offers or the opinions of others.

RECOMMENDATION

Research done by the global consulting firm Bain and Company has shown satisfaction is a poor indicator of loyalty. Bain compared different survey based metrics that leading companies used as a proxy for loyalty. Then they compared these with what the respondents actually purchased. Of all the metrics evaluated the question "Would you recommend this company to a friend or colleague?" showed the strongest link to actual repurchase and loyalty.

This makes intuitive sense. When someone is asked if they are willing to recommend you, they are being asked to put their personal reputation on the line with their friends and colleagues.

Think about your own business for a second. Can you quantify how many of your customers would be willing to take a personal stand and recommend your business to a friend or colleague?

NEW METRIC

There is a relatively new metric gaining popularity that helps companies quickly and efficiently understand how their customers feel about doing business with them. The concept is called Net Promoter.*

Customers are asked to rate their willingness to recommend a business to a friend or colleague using a 0-10 scale. A rating of 0 is not likely at all and a rating of 10 is extremely likely. Based upon their rating respondents are then separated into three segments; Promoters who give ratings of 9 or 10, Passives who respond with a 7 or 8 and Detractors who give ratings in the range of 0 to 6. A Net Promoter Score (NPS) is calculated by taking the percentage of respondents who are Promoters minus the percent who are Detractors.

The higher the NPS the stronger the relationship the organization has with customers. New research published in 2009 shows a strong positive relationship between the number of Promoters in an organization's customer base and the organization's rate of growth over a three year period. The same research shows a downward relationship where growth falls (or actually declines) as the number of Detractors increases.

WHY?

While a NPS may tell you what customers think we feel it is even more important to understand why they feel that way. In our Customer Experience Monitor we ask customers to rate a series of experiences they have had with a company. We link those ratings to Net Promoter scoring to learn what experiences are truly making the difference between a customer who is a Promoter and one which is a Detractor.

Since there are always differences between what people say and what do, we link that NPS and feedback on ratings to the client's actual sales data. This gives us a true picture of the linkages between customer experiences and purchase behavior.

* Net Promoter is a registered trademark of Satmetrix Systems, Inc., Bain & Company and Fred Reichheld.

Perry Graham and Bill Keogh are partners in Experiata, Inc., a marketing consulting firm. He can be reached at perry.graham@ experiata.com.

EVALUATION OF LOYALTY METRICS

Correlation to actual repurchase

Recommend       81%
Deserves        53%
Excellent       35%
Easy to Do      10%
Offers           8%
Overall          7%

Bain and Company evaluated various loyalty metrics by linking them
to actual sales. In this study the Willingness To Recommend a
company or business to a friend or colleague was found to be the
strongest indicator of loyalty based observed purchase behavior.

Note: Table made from bar graph.