Editorial
The Gist
- Net Promoter Score challenges. Over half of CX executives use NPS, but many lack a clear path from scores to action and bottom-line improvement.
- Complementary approach needed. Addressing NPS flaws requires a granular Market Damage Model and action planning for overall NPS improvement.
- Action planning is crucial. Formal action planning and impact measurement are essential for translating customer feedback into tangible improvements.
More than half of CX executives and companies use Net Promoter Score (NPS) as a key metric. At the same time, many of these same executives are nervous about management support and their long-term budgets. Much of the problem lies in the fact that there is not a clear path from a NPS to appropriate action and an enhanced bottom line.
Adam Alter, marketing professor at New York University’s Stern School of Business, recently opined that global warming is a perfect storm of “threat-by-stealth.” He notes that, despite the overwhelming agreement among experts that humans contribute to global warming and its apocalyptic impact, it very often remains a “political afterthought.” Summarizing his theory about the psychology of ignoring such a super-threat, Alter suggests that global warming’s “murky consequences aren’t vivid enough to impress our distracted brains.”
And so it is with many omnibus CX metrics like the Net Promoter Score and the genesis of my previous article on how such metrics cause much handwringing and hot air, but little serious investment or action.
Related Article: Net Promoter Score: Top 3 Impactful Trends
Simple Is Usually Not Actionable — Evolution of Net Promoter Score
The oversimplified Net Promoter Score fails to embolden leadership to act on the impending doom and disaster that accompanies a mediocre customer experience because there is no clear bridge to actions and financial payoff.
Superficially Easy
Many companies have been quick to adopt NPS and similar global indices describing the customer experience. Such “overall” measures are alluring in the C-suite. A single number or index is uncomplicated to calculate, superficially easy to understand and simple to promote in and outside of the organization. They nicely fit into the strategic dashboards that are now popular.
BUT, there is no obvious linkage to financial payoff — only a “black box” — requiring executives to “take it on faith.” In many of these same companies, the executive group has been reticent to aggressively support serious investment in an enhanced customer experience.
Adoption Frustrations
Worse, once adopted, NPS has been applied at all levels of the organization, all the way down to individual front line staff who have only partial control over the CX. This leads to frustration and what we heard in both contact centers and retail settings, “I’m not getting paid enough to take all this crap!” — thus leading to high turnover.
Acknowledging Weaknesses & Misuses
In a November 2021 Harvard Business Review article, “Net Promoter 3.0,” Reichheld, Darnell and Burns acknowledge several of the weaknesses and misuses that the Net Promoter Score has suffered from over the last decade. For instance, they say it is totally inappropriate to use NPS or the underlying question for evaluation of individual service staff, which then leads to “pleading… bribery… and manipulation.”
However, the article fails to address some of the most severe barriers to practical application of Net Promoter Scores. Specifically, there is no bridge to what actions to take and how much revenue and positive word of mouth will accrue from those actions. Additionally, it is unclear how individual corporate functions can be motivated and evaluated using a general metric.
Related Article: Companies Are Misusing Net Promoter Scores: Here’s How to Fix That
A Complementary Approach That Fosters Action
Addressing these fatal flaws of an orthodox NPS approach is simple but not easy. We advocate that any use of Net Promoter Score be supplemented by the use of two transparent actions: a granular Market Damage Model and granular action planning that rolls up to an overall expected NPS improvement. These two techniques help any organization overcome the “hypnotic trance” that the use of NPS alone can typically induce. Neither of these methods are all that new. Xerox and Motorola both used them in the 1990s to support their winning of the Baldrige National Quality Awards.
The Market Damage Model (MDM)
Over the past four decades, we have frequently used the MDM to address primary shortcoming of traditional customer experience measurement which is long on directional data but short on specifying the bottom-line consequences of inaction.
Using both customer experience survey data and customer value data as inputs, the output of the MDM is a dollar-value estimate of the revenue (or profits) at risk resulting from a “less-than-perfect” customer experience. The MDM effectively offsets each of the three weaknesses of an NPS-only approach. Specifically, the MDM analyzes the problem and service experience of at least 1,000 customers to:
1. Identify specific customer points of pain (POP) in each phase of the customer experience that cause damage. Many of these problems are not articulated by customers, especially during marketing and sales, but often do four times the damage of issues like delivery and payment.
The chart from a manufacturer shows that the most prevalent problem, website search, is causing over $10 million in damage annually (1% of customers = $2.75 million). Three specific service issues are together costing an additional $15 million. Improved internal communication on delays (2%) and quotes/minimum order quantities (1.6%) would, by itself, deliver an immediate $10 million in payoff. Also, notice that the damage to loyalty (86%) of “order delay without notice” causes three times the damage, on a per-problem basis, of not finding an item on the website. Customers hate unpleasant surprises that disrupt their operations.
2. Facilitate the identification of the cause of problems and accountability for action. Customer problems do not occur in the abstract; they are encountered at specific times and are caused by specific processes and functions which can be noted, reported and fixed. The MDM can be tied to problem occurrence, complaint behavior and problem resolution; all of which can be easily measured and are conceptually simple to grasp.
In the above example, getting production to communicate delays and product management to respond to emails requesting quotes and MOQs might only require stern memo from the COO — often big fixes require only simple actions. The key requirement is quantifying the cost of inaction, here, $800K in revenue damage per month. This is enough to get everyone’s attention.
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3. Quantifies the revenue and word of mouth damage of the overall level of problems and of each problem in a manner that is credible to Finance and Marketing. This translation of simple descriptive data to a business case rooted in financials creates a credible call to action and allows priority setting based on ease of fixing vs. revenue and WOM payoff. The above chart shows that 17% of revenue is at risk due to a small number of CX issues. Retaining customers via plugging the hole in the revenue bucket is dramatically easier/cheaper than winning that many new customers via sales and marketing.
Related Article: How Generative AI Improves Customer Experience Metrics
Formal Action Planning Followed by Impact Measurement
Action planning is similar to the process outlined in "The Amazon Way" by John Rossman. On a quarterly basis, or when an emerging, important customer point of pain is identified, the root cause is identified. In most cases, the issue is cross functional, including sales, operations, quality and service. The CXO appoints one function to take the lead. This functional leader must “wrangle” all the other involved functions to achieve a fix or mitigation. At the beginning of action planning, a process and outcome metric are identified to assure management knows when “the needle has moved.”
Continuous Improvement Effort
As part of our own continuous improvement effort, we field a client satisfaction survey following every engagement. Our questionnaire includes all of the usual suspects, from sales and expectation setting to execution and responsiveness to issues as well as satisfaction, and a gauge of the intention to recommend. However, the most important question we ask is, “Have you taken tangible action to improve the customer experience based on the work that we’ve co-produced?”
Action to Enhance CX
Taking action on survey results is more the exception in the general marketplace. Even among companies that tick all of the technical, best practices boxes for increasing survey impact, many still fail in their attempt to positively influence CX. This is because they have no process in place to connect the dots between the survey findings, problem experience, operational accountability and metrics confirming that the needle has moved and the problem has been reduced.
Action Planning
Tactically, action planning consists of a formal, face-to-face gathering of a cross-functional group of key stakeholders (as few as eight and as many as 20) engaged in a day-long facilitated session focused on three to five priorities for action that have been identified by the survey. Strategically, action planning is an ideation effort; it is the connective tissue between the survey findings/recommendations and the change in organizational behaviors. The various methodologies for implementing this facilitated event are plentiful (e.g., brainstorming techniques, visualization practices, etc.).
Ensuring Impact
Regardless of the methodologies used, the critical point is to ensure that an action planning effort is in place. One approach we have found that ensures that the survey has impact is to inform respondents in the initial survey invitation letter that 90 days after the survey is analyzed, the CEO will communicate to the customer base what was learned and actions that will be taken. This puts the company on the hook and forces them to create accountability and act.
Follow-up Communication
When this follow-up communication is sent out, the customer base cheers. Fred Smith communicated such results to FedEx customers and received significant positive feedback — “Wow, you actually listened!” The CEO of an East Coast credit union received 54 emails congratulating him on having the guts to ask about problems. Two Harley-Davidson survey respondents scrawled across their fully completed surveys, “Finally someone sent me a no-BS survey! It looks like you really want to solve problems!”
Implementation of the MDM Problem Bridge to Action Planning & Impact
1. Conduct a Survey of at Least 5,000 Customers (or a Census if You Have Less Total Customers) to Identify Their Problem Experience and Complaint Behavior
If you conduct broader relationship surveys, you can differentiate this effort by noting you’re focusing on frustrations and problems. Several major companies call this their “Customer Dissatisfaction/Frustration Survey.” The invitation should note actions you taken based on previous feedback, to show you are listening, as well as promising to feed back what you learned within 90 days.
Rather than asking if they have had any problems, be specific. Provide the respondent with a list of 20-40 specific problems. This does not create problems; it just assures that they go through the entire journey and remember the issues. An aided list will normally surface up to three times as many problems. Surveys are normally email though some are still delivered via snail mail.
The same survey can also ask if customers have encountered any occurrences of delight. We usually find 10-20% report delight and those customers are more willing to pay higher prices and their word of mouth is twice as impactful as that from “just satisfied” customers. The good news is that delighters are usually very inexpensive, like enthusiasm, empathy, education and intelligent cross-selling.
2. Granular Issue Identification Accompanied With Customers at Risk and Revenue Damage
Inaction on CX suggests that it is not lack of an overall belief in the potential impact of CX actions, it is being able to justify investment of X dollars in a specific CX action vs. advertising or a new distribution center. These decisions are easier when you are talking about investment in a new customer onboarding process or modifying the invoice adjustment process. In each case, you can estimate the number of customers currently having a bad experience due to the issue.
The calculation allows you to estimate the number of customers at risk which facilitates the CFO attributing as much revenue per customer (possibly a lifetime value or some lesser amount) as she feels comfortable. For each type of problem, Finance can then estimate the revenue damage by seeing how many problem occurrences take place.
3. Rigorous Analysis of Strategic Solutions
Work with Quality or Lean Process professionals to define several possible approaches to fixing the issue and how to pilot test it in a rigorous manner. This analysis must be at the granular issue level, not at the overall CX level. Net Promoter Score does not add to granular analysis at all.
4. Action Planning and Communication of Intentions to Customers
Action planning takes the problems and possible solutions and balances cost with payoff as well as other corporate priorities to arrive at a limited number (ideally 3-5) of customer POP to address. The CXO or COO assigns only one or two POP to any one function or executive. While the issue is likely cross-function, one executive must be responsible.
Finally, you can measure whether the needle moved if the number of problems decline after your fix. Problems can often be measured via internal operations data, e.g. delayed shipments or invoice adjustments as well as complaints. The next survey can confirm if the customer has seen the improvement.
5. Bonus Payoff Impact: Word of Mouth and Margin Impact by Granular Issue
The key to winning new customers is word of mouth (WOM) referrals. Successful B2C companies like Harley Davidson, Chick-fil-A and USAA get more than 70% of their new customers from WOM. Our surveys of B2B put the percentage as high as 90%, especially for small and medium businesses. Resolution of specific issues as well as different kinds of delighters create different magnitudes of WOM. This impact can be quantified by issue. Likewise, customer’s willingness to pay more for a product or service is affected by problem and delight experiences — again this varies by CX issue.
Final Thoughts
In summary, Net Promoter Score has helped create a certain customer experience groupthink. The “magic” of NPS has fostered the belief that its use makes the company infallible or invincible. No one is paying attention to the tactical signs of impending customer doom because they lack the right data and processes.
The key to preventing the oft negative outcomes associated with Net Promoter Score is to use it in conjunction with quantification of the granular market damage of inaction on customer POP and a formal action planning process that fixes accountability for problem prevention/mitigation and impact measurement.
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