What Do Apple Computers, Wegman’s and MEP Have in Common?

How about best-in-class Net Promoter Scores.  Read on:

Many, many organizations attempt to measure and manage their performance through some form of customer satisfaction survey and most of them do it rather poorly.  Some of this is due to the surveys themselves.  In his seminal book on this subject, The Ultimate Question, Fred Reicheld points to the following as some of those problems:

• Customers receive too many surveys with too many questions
• Employees don’t know how to take corrective action based on the data gathered
• Scores from the surveys are not linked to behaviors of employees
• Surveys confuse transactions with relationships
• Satisfaction surveys themselves frequently create dissatisfaction among customers

But a potentially larger problem is settling for good performance on a relatively low standard in a dimension that may not be sufficient to maintain your competitive advantage.

In 2009, the Baldrige Criteria for Performance Excellence changed the requirements around customers from a focus on satisfaction to one of engagement. Research on the practices of world-class organizations had led to the realization that customers who were merely “satisfied” were very likely to switch brands in response to minor changes in price or added features.  To actually build the type of loyalty that would ensure organizational sustainability, it was important to build relationships that resulted in customer engagement.  The Criteria characterize customer engagement as “a willingness to make an effort to do business with your organization . . . and to actively advocate for and recommend your brand and product offerings.”

In addition to a new concept of the necessary relationship with customers, a more rigorous way of determining this level of engagement was also required.  Traditional satisfaction surveys frequently used a 5-point Likert scale where the sum of “satisfied” and “very satisfied” respondents is considered as positive performance.  Reicheld’s research demonstrated that respondents in those two groups actually behaved very differently.  By utilizing a different measurement methodology, he was able to much more accurately pinpoint those customers who behaved the way an engaged customer should.

Reicheld’s method has come to be known as the Net Promoter Score.  It focuses on a single important question that frequently is in the format “How likely would you be to recommend X to a friend or colleague?”  It also utilizes a much higher standard for establishing positive performance.  As you can see from the chart below, respondents are given a 10 point scale on which to rate the likelihood of recommending your product, service or organization.  Those that give ratings of 9 or 10 are considered “Promoters”.  They typically have much higher repurchase rates than any other respondents and frequently account for up to 80% of the referrals an organization receives.  Scores of 7 or 8 indicate “Passives” and those scoring you 6 or below are active “Detractors” who are responsible for the vast majority of negative word-of-mouth comments about your organization.

The Net Promoter Score is then calculated by subtracting the percentage of respondents who are Detractors from the percentage that are Promoters.  This produces a very high bar where industry averages range from about 25% (Financial Services and Insurance) to just under 50% (Retailing and Online Services).  Consequently, scores for even the best performing and most admired organizations are lower than many typical satisfaction scores.  For example, here are scores for some industry leaders as provided by Satmetrix.

The MEP system uses a Net Promoter Score question on our survey of the client firms served by our Centers.  For the most recent four quarters 6,220 of the 7,888 firms surveyed responded to the NPS question (a response rate of 79%).  The overall NPS for the system was 67% for the period placing us amongst some highly regarded company.  While there was some variability in the scores for individual MEP Centers, performance at that level was also quite strong with more than half the Centers achieving scores of over 70%.  It is probably not surprising to those of you who work in the MEP system that the relationships we establish with client firms produce repeat engagements and a willingness to recommend our service offerings.  In the competitive environment in which we operate, however, there is little time to congratulate ourselves.  It is important that the system as a whole and individual Centers continue to develop a deep understanding of the behaviors that drive such strong performance and, in the spirit of continuous improvement, seek to understand what one thing could we have done to turn that Passive or Detractor into a Promoter.