Tuesday, May 20, 2008

CMO Club May '08: Using Net Promoter Score to uncover buying behavior of "promoters" and "detractors"

Deb Eastman, CMO at Satmetrix a co-developer with Net Promoter, reinforced the message that your brand is defined by your customer, not your marketing department.

Satmetrix works with Net Promoter which provides a measurement framework for experience, loyalty, and word of mouth. That measurement is better known as the Net Promoter Score or NPS, and it's begun to be widely used.

The raw data for the Net Promoter Score is generated by asking customers, "Would you recommend this company/product/service to someone else?" People answer on a 0-10 scale. If they answer 9 or 10, they're defined as a "promoter." If they answer between 0 and 6, they're a "detractor."

The Net Promoter Score is calculated by subtracting the percentage of detractors from the percentage of promoters. If it's a negative score, you've got a serious issue. Historically, companies with the highest NPS have also had the highest growth rate.

Eastman looked at Net Promoter performance for the computer hardware industry which averaged about 24% for the entire industry. In comparison, the well-loved computer manufacturer Apple has an NPS of 78%.

Determining NPS allows you to delve into buyer economics. How do promoters and detractors buy and how costly is it to reach them? What Satmetrix discovered is promoters are less price sensitive and they tend to buy more. Conversely, detractors spend less and they're more expensive to serve. In fact, they're about 75% more expensive to serve than promoters.

Is it worth it to try to convert costly detractors? Or should you just focus on promoters? It's debatable, but promoters are definitely worth more overall because they will spend more money, are not costly to attain, and they will bring their friends.

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