Dominic Kitchin, founder of The Science of Buying, explains how businesses can measure their customer loyalty and why this is an important metric to understand.
Understanding how loyal your customers are is important if you want to focus your sales and marketing effort in the right places.
Until recently there hasn’t been a way to measure customer loyalty. Instead we’ve measured ad effectiveness; although this is useful it doesn’t tell you about loyalty, in other words, how many customers are going to stay with you.
Dominic Kitchin is from the Science of Buying, and he has helped dozens of companies create a loyal customer base which comes back again and again – enabling the business to grow quickly and profitably.
Dominic believes that without a statistically proven method to measure loyalty it is difficult to determine which areas of the business need improving in order to increase the number of returning customers.
Many large firms use the Net Promoter Score (NPS) created by Fred Reichheld –this allows organisations to measure customer loyalty.
We buy from emotion and then, what usually follows, is a rationalization of the purchasing decisions through logic.
This is backed-up by Professors Patrick M Georges, Anne-Sophie Bayle-Tourtoulou and Michael Badoc in Neuromarketing in Action: ‘Customers decide with their gut. Half of their decisions are irrational and emotional. Marketing must deal with customers’ emotions as well as their reasons to buy’.
Loyalty is influenced by emotion. So we need to gauge an emotional intention with an emotional question, i.e. ‘How likely would you be to recommend…?’. When we recommend something we do so in order to help, impress or show off to others. This is why the ‘How likely would you recommend…?’ question fits the emotional measurement.
Therefore, understanding your NPS is essential. Dominic explains how to measure and understand your NPS:
Ask your customers; “on a scale of 0-10, with 0 meaning ‘not likely at all’ and 10 meaning ‘extremely likely’, how likely would you be to recommend (company name) to your family or a friend?”.
If customers give you a score from 0 to 6 then they are known as a ‘detractor’ – they tend to speak negatively about organisations, they spend less, and they don’t stay as long with an organization. The good news is; if dealt with in the right way they can become promoters.
People who give a score of 7-8 are known as ‘Passives’ – they ‘sit on the fence’. When someone asks them “What about this company?” they’ll say some good things and negative things too. In addition, passives are extremely sensitive to price competition. However, just like the Detractors, they can be turned around to become promoters and super promoters.
People who score 9-10 are what we call ‘Promoters’ - someone who is extremely LOYAL! They are like the hard-core Apple fans who queue rave about the products at any opportunity.
To calculate the Net Promoter Score:
The % of people in your sample who scored as a promoter – the percentage of people in your sample who scored as a detractor = NPS
E.g. 100 people have responded 10 are detractors, 20 are passives, and 70 are promoters. So that would mean your NPS score is 60.
The scoring can range from -100 to +100. The closer the score is to +100, the higher the loyalty.
It’s important to understand your customer loyalty – and constantly work to improve it (i.e. your NPS).
Many organisations believe they need to be perfect in order to avoid detractors. However, it’s not perfection that creates super promoters, it is the way a company deals with its mistakes and responds to the customer’s needs that creates super promoters.
When you fix mistakes –your loyalty is deepened. So having detractors or passives is an excellent opportunity for growth.
Customer loyalty is essential if you want to grow your business; by attracting loyal customers you’ll get repeat business and you’ll also get free advertising as they recommend you to their friends and family.