Paul Hague this week advocates a simple, new metric to measure value.
In less than 10 years, the NPS or Net Promoter Score has become familiar jargon in business boardrooms. It is a single metric, a golf handicap score, that leaders can easily understand and which they can use to ruthlessly drive their businesses.
The Net Promoter Score is a measure of customer satisfaction and loyalty and who can deny that these two factors are crucial to the success of any business. It is easy to understand and the fact that it requires a simple calculation gives it a sort of scientific kudos.
Let us remind ourselves what the Net Promoter Score is. We ask customers one simple question – “How likely is it that you would recommend COMPANY X to a friend or colleague?” The response is recorded on a scale from 0 to 10 and the percentage of companies giving a score of 6 or less is subtracted from the percentage of companies giving a score of 9 or 10. Those in the middle ground giving scores of 7 or 8are ignored.
However, the NPS is not without its deficiencies.
|Reasons why the NPS is deficient
|The scores given to the question "likely to recommend" are so similar to the scores given to overall satisfaction, why ask both?
|You can only get a true score on both satisfaction and likelihood to recommend from people that have used a product or a supplier. It is not a good metric for judging potential customers.
|Some people may think that a supplier or a product is truly excellent, so much so that they wouldn’t want to recommend it to anyone else for fear of losing an advantage. They therefore may give a low score to the "likely to recommend" question even though they think the supplier is brilliant.
|Some people believe that the question, "how likely are you to recommend?" Is leading as it plants the idea that you are likely to recommend. As such, it generates more positive comment than negative comment.
We think that the NPS is a good metric but we also recognise that it is dangerous to drive a company on this number alone. The NPS does not measure the value that people attribute to a brand and this must be one of the most important metrics of all.
Towards this end we have developed a measure which is fast gaining ground. It is called the Net Value Score or NVS and it measures the value that people attach to a brand or a supplier. Pat Kenny, Vice President Of Corporate Marketing at PPG Industries, said the following about the NVS:
“PPG Industries is fully committed to providing our customers with compelling value and so the NVS is a new metric that provides an ideal way to measure customer-experienced value. It is an excellent, adjacent metric to other popular customer advocacy scores that companies should embrace.”
To arrive at the Net Value Score, one simple question needs to be asked:
“How would you rate COMPANY X on the total value the company offers, compared to the total value offered by other suppliers of similar products/services?”
- Significantly better
- Somewhat better
- Neither better nor worse
- Somewhat worse
- Significantly worse
Using answers to the question, the following steps result in the computation of the NVS:
- Double the percentage of people that stated “significantly better”.
- Double the percentage of people that stated “significantly worse”.
- Add the adjusted “significantly better” figure (from step 1) to the percentage of people that stated “somewhat better”.
- Add the adjusted “significantly worse” figure (from step 2) to the percentage of people that stated “somewhat worse”.
- Subtract the total “worse” calculation (from step 4) from the total “better” calculation (from step 3) to arrive at the Net Value Score.
Calculating The Net Value Score
The Net Value Score is a composite measure of the brand value. The maximum possible score is 200. Excellent scores are above 60, good scores are between 40 and 60. Scores below 40 indicate a relative indifference to the brand and require urgent attention. The question can be asked of all companies known to a buyer or specifier (customers or potential customers) and it measures perceptions. These perceptions drive customer choice. The NVS has the added advantage over the NPS of providing a simple tool for tracking the value of a brand over time and providing a very strong indicator of likelihood to purchase.
For more information on the Net Value Score, visit http://www.netvaluescore.com/
This entry was posted
on Thursday, September 22nd, 2011 at 12:24 pm and is filed under Customer Insight, Customer Retention, Customer Satisfaction Research, Loyalty, Net Promoter, Net Value Score, Paul Hague, The Business Surgery, Value.
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