One of the most exciting and promising developments in marketing is the emergence of something called Net Promoters as an increasingly critical metric that drives corporate performance. First described by Fred Reichheld two years ago in Harvard Business Review, followed by his recently published book The Ultimate Question, Net Promoters is now being adopted by a growing number of highly respected firms, including General Electric, Intuit, and SAP.
What does it do? In a nutshell, it provides simple but very powerful analytical rigor to what is arguably the most important source for spreading positive buzz about a company: its own customers. Companies that earn the highest Net Promoter Scores—a metric defined by the number of those customers highly likely to recommend the firm ("promoters") less those unlikely to recommend ("detractors")—typically achieve the highest rates of profitable growth in their marketplace. Reichheld's research shows that this simple indicator is a powerful predictor of profitable growth.
Why is this good news for marketers? Because, first, marketing is positioned to play a central role in the effort to, in a sense, turn customers into a key component of your sales and marketing department. That's precisely what SAP, for example, has been doing ever since Reichheld's seminal HBR article was published.
In addition, such programs appear to have real potential for not only generating impressive ROI—which is increasingly critical for marketing programs to demonstrate—but also having a clear impact on top-line growth. In mature or maturing industries (like technology), where there's only so much room left for real innovation or product differentiation, companies must distinguish themselves by how well they treat their customers and how likely such customers are to say good things—which suggests that customer referral and promoter programs will be around for the long term.
Let's take a quick look at what a customer promoter or reference can mean to a firm's growth.
The Impact on Growth
A promoter is a customer who, when asked how likely he or she would be on a scale of 0 to 10 to recommend a company, answers with a 9 or 10. In other words, such customers are highly likely to recommend.
When a company generates such a customer through a combination of acquisition marketing and delivering a positive customer experience, it generates incremental value in two ways. First, regardless of whether a recommendation is made, when a customer provides a high rating on "likely to recommend," it is a strong indicator of retention and loyalty, establishing that customer as more profitable than neutral or negative customers (Reichheld's "passives" or detractors). This is the basis of Reichheld's Net Promoter Score—the net of promoters less detractors, encouraging companies to improve the customer experience to improve profitability. Here your growth comes from earning a greater share of customer wallet. Average Customer Value
+ Additional Retention Value
+ Additional Price Premium
= Value of Promoter Customer
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