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NPS and CSV: How to Gauge Customer Loyalty Without Fussy Surveys?
September 10, 2024
10 mins
83% of people entrust referrals, relatives, friends, or colleagues and admit that this is the most reliable source of information. That’s why brands monitor customer loyalty index - NPS, Valeria Lavska, Marketing Director at Promodo.
The Net Promoter Score (NPS) metric was invented more than two decades ago. Fred Reigeld, an American writer and business strategist, presented the Net Promoter Score calculation system in his article “The Only Number You Need to Grow” in the Harvard Business Review in 2003.
Reigeld outlined his four-year path towards measuring customer loyalty free of long surveys, which usually did not involve the main persons of companies, and without direct questions about the level of product satisfaction. The research sought a loyalty score that would correlate with and predict a company’s revenue.
The core question beyond the NPS calculation was:
“Please rate 1 to 10 whether you’d recommend the product to your family or friends.”
To analyze the responses, Reigeld categorized respondents:
To calculate the NPS index, you need to subtract the percentage of detractors from the percentage of promoters:
%Promoters – %Detractors = NPS Score
And, what about those who refused to take the survey? There are no rules: you should agree on a methodology internally and stick to it consistently over the years to ensure that the dynamic of changes is representative. If a client ignores the survey, we usually add it to liabilities. If they refuse to answer, we add it to detractors, which is mostly the case with B2B services.
During the experiment, Reigeld’s partner companies sent emails to thousands of users for three years in a row asking them to select familiar companies from the list and assess the likelihood of recommending them to their nearest and dearest. Meanwhile, a group of researchers tracked the revenue dynamics of these companies over the same period. In most cases, the correlation between NPS and revenue was obvious, regardless of a company’s size.
Beware that not all industries are indicative of NPS measurement, though. When it comes to a product that is complex for the end user like Internet software, it’s best to segment respondents by their roles to avoid abstract indicators. Also, the numbers may be unrepresentative for monopoly products because users won’t be able to compare them with competitors.
Still, two-thirds of Fortune 1000 companies and hundreds of thousands of companies around the world beyond this list apply the NPS methodology.
NPS indicators depend on the niche. Many companies conduct research among businesses annually and provide us with the benchmarks that guide us further. Among them is Retently, and at Promodo we have relied on their benchmarks for the past few years.
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A proven channel since the invention of NPS that still works well. For many Promodo customers, we set up automatic AMP emails where customers can rate a product or business right in the email without turning to other pages or services. This is a sound option because you can gather lots of data automatically for further analysis in a single spot.
In addition to the “would recommend” score, retailers launch triggered emails with the question “How far are you satisfied with the service?” immediately after the purchase to improve the quality of service. Conventional NPS is conducted less often: 1-to-4 times a year.
In Promodo, we conduct NPS surveys by phone. Compared to 2023, the number of customers who asked us to move surveys to Telegram this year has increased by some 40%.
The method is much more suitable for services and B2B, where it is crucial to hear a detailed, sincere answer and ask counter-questions. The downside of this method is manual data entry, which implies an increased risk of human error. The upside is the ability to record the call for further feedback analysis.
These are usually tablets that are located in banks or store halls. They are well suited for B2C chains, allowing them to collect and analyze customer data by store, region, etc.
If you have never conducted an NPS survey before, you may start with Google questionnaires. The main thing is to stick to your goal and the questions you want to ask.
At Promodo, we conduct NPS surveys twice a year. And even with this frequency, we often hear: “What, again? I just told you everything recently.” People usually don't have time to do what you need, so you need to elaborate on the system and the schedule of questions and set NPS goals.
For example, if you want to track changes in the likelihood of a customer recommending your product after the second or third purchase, segment your customers and mention that you are interested in repeated interaction. Customer personalization increases the likelihood of responses.
We consider NPS through the lens of our core services, so we ask our clients separately about each service provided. This allows us to make an in-depth analysis of the service, get ideas for improvement, and most importantly, identify customers “at risk” while it is oftentimes difficult for people to share their dissatisfaction with managers directly.
The NPS questionnaire contains questions about the likelihood of recommendation for our core services, the company as a whole, and whether customers are satisfied with working with our managers. As the case may be, we may add more questions that will help us analyze customer awareness of the product line and the convenience of reports, etc.
For each grade, we add the opportunity for a detailed answer: “Why have you rated that way?”
You don't have to limit yourself to a single question, be free to add two or three more questions that will help you get important insights and improve your strategy. With that, make sure not to spam your customers with questionnaires.
Even though NPS reflects a customer’s love for a brand, it does not guarantee that everyone will make a repeated purchase or recommend you to others.
CSpace asked 200 people to rate up to three of the world’s ten largest brands: Twitter, Burger King, American Express, Gap, Uber, Netflix, Microsoft, Airbnb, Amazon, and Starbucks. Participants were only allowed to rate the brands they bought from. The outcome turned out with over 5000 ratings with approximately 500 ratings per brand.
In addition to the main NPS question, they added another two: “Have you already recommended this brand to someone?” and ”Have you ever discouraged someone from buying from this brand?” This was to help understand how the intention differs from the fact of recommendation, and whether customers may serve as both promoters and detractors at once. Some 52% of respondents participated in NPS.
In the survey about Spotify, one of the “passives” said that he had recommended the service to his friends because of its ease of use and customization in music selection, but had discouraged his parents from subscribing because he considered Spotify would be too complicated and expensive for them.
Another example came from Walmart. One of the respondents gave Walmart a 0 in the NPS survey because these supermarkets are dirty and there are constant lines. Meantime, he recommended Walmart to his friend because he spotted an inexpensive desk there that would perfectly suit his room.
Overall, the survey showed that 50% of the promoters would recommend the brand, while 69% did so. And among 16% of detractors, a mere 4% discouraged their friends and acquaintances from using the brand.
Given NPS inaccuracies and controversies, businesses have come up with another metric known as Customer Surplus Value (CSV). The idea came from the world of economics. CSV aims to show how much money you need to give a customer to make them give up your product or brand. The more money you need, the higher the CSV.
Customer Surplus indicates the difference between how much a customer is willing to pay for a product and its actual price.
CSV measurement is based on binary choice experiments. Respondents are asked to choose between keeping access to a product or service or giving it up for one month in exchange for monetary compensation.
For instance:
Would you rather keep your access to the Netflix service or give it up for one month and get $15 money back?
If the monetary reward is randomized among respondents, the results show a demand curve representing the proportions of customers who are willing to give up the product for a certain amount.
Further, the company compared CSV correlation with NPS. While the outcome is not obvious, it opens up a lot of insights for owners and managers.
Looking at the NPS of Facebook and McDonald's, we see negative tendencies:
NPS is an effective way to get a snapshot of your product or service.
We suggest conducting non-anonymous NPS surveys to delve into additional contact parameters and identify patterns and similarities. In this pursuit, motivate customers to leave more personal details through gamification and small rewards.
Don't hide your NPS results - develop an action plan to turn detractors into passives, passives into promoters, and retain promoters along the way. This is crucial when you are actively investing in attracting new customers.
CMO at Promodo
With over nine years in the realm of content creation and marketing, I've honed my expertise in both B2C and B2B landscapes. You may have come across my insights in renowned blogs like Smart Insights, SemRush, Clutch.co, Forbes, and various others. I hold a steadfast belief that businesses thrive when they simply communicate complex processes, underscoring the advantages and genuine value they offer to their clients.
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