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.

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:

1. Double the percentage of people that stated “significantly better”.
2. Double the percentage of people that stated “significantly worse”.
3. Add the adjusted “significantly better” figure (from step 1) to the percentage of people that stated “somewhat better”.
4. Add the adjusted “significantly worse” figure (from step 2) to the percentage of people that stated “somewhat worse”.
5. 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/

It never ceases to amaze how many times I discover sellers within client companies, who misunderstand the signals they get from their customers and – as a consequence – over-estimate the number of price-buying customers they have. My most famous case occurred ten years ago. I kicked off the first day of a three-day marketing workshop to be confronted by one seller: “Before we waste three days of our valuable time, could you just explain why I should spend three days in this workshop when 80% of my customers are Price Buyers?” – A not atypical challenge.

I was very interested by this claim, as I had personally never come across any market situation where there were so many Price Buyers and I had worked in a number of undifferentiated (some would say “commodity”) product-markets.

On that occasion ten years ago, I managed to convince my challenger to stay with the workshop. By the end of the three days he acknowledged and agreed fully that less than 30% of his customers were actually Price Buyers. The end result put several millions of Euros on to client’s bottom line that same year and sustained into the subsequent years.

This case highlights a very common issue and challenge for companies in many B2B markets and especially in the chemicals and plastics industry. Just imagine what that means to margins if we can misinterpret the needs of up to 50% of our customers!

So what are the causes of this widespread phenomenon and what can we do about it?

1. Buyers defences are high

Situation: Buyers are often between the rock and the hard place, under pressure to reduce raw material costs, whilst at the same time ensuring a continuous and timely supply of good quality products to the plant. That pressure is often manifested in a demand for better prices.

Remedy: Sellers need to understand how difficult it is for a buyer to be a GENUINE Price Buyer – it is not easy. To be a Price Buyer the customer must have the following conditions in place:

• A real choice of qualified products from at least three and preferably more suppliers
• The ability to switch suppliers easily at any time and at no significant cost
• Independence from suppliers in terms of technical know-how and application knowledge – meaning no need for technical support

If the customer cannot demonstrate these conditions, they cannot be a Price Buyer…..and, by the way, any customer that comes back to the seller with the offer to win or keep the business if they match the price of an alternative supplier is NOT a Price Buyer. This behaviour is a clear indication of a preference to do business with you – you must discover the basis of that preference.

2. Sellers think they are selling commodities

Situation: The word commodity carries with it many connotations, not least that there is no value in marketing or customer segmentation; it’s all about getting the price right, as customers do not value anything else.

Remedy: Sellers should think of these as UNDIFFERENTIATED PRODUCTS, which are just one part of the TOTAL OFFERING; this means that there may be still real possibilities to differentiate the offering on service levels (e.g. reliability or responsiveness) or on intangibles (e.g. reputation or relationship).

3. There is no meaningful and differentiating customer segmentation in place

Situation: Sellers have no reference points or supporting models to help them to distinguish different buying behaviours and different customer needs.

Remedy: Sellers need to be able to recognize the differences in need and behaviour of their customers. It can help to provide them with a customer segmentation model based on needs and values of different customer groups, encouraging them to seek out and recognize the differences and to gear the offering to fulfil the specific customer needs; for example:

• Innovators: value first and early access to new products;
• Growers: value reliable delivery of needed quantities of tried and tested solutions;
• Optimizers: value solutions that reduce costs or improve efficiencies;
• Easy to do Business: value quality products from reputable suppliers with no hassle;
• Security of Supply: value secure supply at all times from a committed supplier;
• Strategic Partner: value a long-term relationship from a strategic partner they can trust;
• Price Buyers: select the lowest price offered from at least three pre-qualified suppliers

4. There are no clearly defined customer value propositions

Situation: The seller has no clearly defined value propositions to offer to the customer, based on the segment to which they belong.

Remedy: Marketing needs to provide sellers with well-defined and clearly differentiated value propositions, providing them with the ammunition to beat the competition. Sellers fire the guns, marketers provide the bullets.

Each of the above segments demands a clearly different and differentiated value proposition with Product – Service – Intangibles and the 4R’s of sustainable differentiation

• Innovators: innovation led offering from a flexible and responsive creative supplier
• Growers: proven solutions from a responsive global player with advanced supply chain
• Optimizers: projects to reduce cost and improve efficiency from a loyal supplier
• Easy to do Business: high quality products delivered reliably from a reputable supplier
• Security of Supply: guaranteed continuous production from a highly reliable supplier
• Strategic Partner: strategic support from a long-term supplier they can trust
• Price Buyers: lowest price and available product

5. Sellers typically approach a customer with one offer rather than offering choice

Situation: Sellers are ill-equipped to offer choices to the customer, either because the marketers have given them no alternatives or they are not empowered nor authorised to develop their own alternatives and therefore make a single offer (“take it or leave it”).

Remedy: Customers need and value CHOICE. If you do not offer choice, they must seek alternatives from other suppliers in order to be able to run the trade-off process, which is typically the core of any buying decision-making process. Marketers must provide the sellers with a palette of offerings tailored to the needs of customers in specific segments and reflecting the importance and value of the customer to the supplier, so that sellers can offer their customer a genuine choice (“which of these offers best meets your needs at the price you are willing to pay?”).

Phil Allen is CEO and Value Creator at Marketing and Sales Excellence Practice, GEMS International GmbH.

For more information on how B2B International can help your business segment their customer base and more closely satisfy their needs and make a profit along the way then visit – Segmentation Research

Tesco says its customers’ loyalty helped boost sales and profit during the first half of the year as the business benefits from “tailwinds of recovery”

The supermarket chain recorded a 5.9% rise in sales to £21.8bn in the UK and 5% profit increase to £1,2bn for the six months ending 28th August.

Like-for-like sales, which exclude new stores and additional space, were up 0.3% which Tesco claims outperformed market performance.

Tesco says its performance has been “solid” during “a period of unusually subdued” growth and low levels of like for like sales across the industry thanks to its continued focus on the customer and building loyalty through its Clubcard scheme.

In a half-yearly statement, Tesco says: “Our strategy is to earn their loyalty by helping them to spend less – through low prices, good promotions and an increased investment in Clubcard.”

The supermarket claims to enjoy the highest level of loyalty among the major UK supermarkets as measured by the percentage of customers who do more than half their shopping with one retailer.

Tesco says while loyalty has decreased across the sector, it has widened the gap between its rivals and maintained its high loyalty.

Non-food sales n the UK grew by 2.5% to £4.4bn.

Tesco Bank added 200,000 customer accounts during the period and reported a 12.9% uplift in revenue to £474m and 12.2% profit growth to £129m.

Group sales across all Tesco’s territories increased 8.3% to £32.9bn while group profit before tax was up 12.5% to £1.6bn.

Terry Leahy, Tesco chief executive, says: “Economic recovery in the UK is slow and steady and I believe our investment in making the shopping trip even better for customers means that Tesco is well-placed to grow in this environment.”

Loyalty Cards

An estimated 70% of sales revenue is linked to their loyalty card, which means they have a very clear understanding of who spends what in its stores.

52% of loyalty card holders convert rewards to money off at the till.

33% of holders redeem coupons and vouchers sent as part of a loyalty card scheme.

Only 21% of loyalty card holders save up rewards to help pay for something they need.

1 in 10 loyalty card holders collect points but rarely, if never, redeem them.

51% of holders say ’it’s really worth my while collecting points’.

10% of card holders say that the loyalty cards rewards are too small to be worth collecting.

As per the article by Marketing Week.

 
The Holy Grail for the market researcher is to find out what people really are thinking. When we ask people in interviews what is the importance of a brand, or how much they value a trustworthy supplier, we can’t always believe we have got the right answer. Throughout our education we are taught to think rationally and therefore when we are asked questions in a market research survey, we are likely to answer rationally. This means that we are in danger of overstating the importance of the rational factors such as price and technical performance at the expense of the emotional factors such as appearance, imagery, brand and the like. For this reason our attention was grabbed by an article in the Financial Times this week which scarily tells us that scientists are close to being able to tap into our innermost thoughts by putting on our heads a red bathing cap with wires attached. Apparently without asking any questions, they can work out what emotions are most successful in persuading us to take action. Read on…
 

Why marketing minds have turned their heads to mind-reading

By Hannah Kuchler
Financial Times April 12 2010 03:00

Last month, I surrendered my subconscious to analysis. A red swimming cap was stretched over my head, long grey wires stuck to my skull and my innermost thoughts fed into a computer as I nervously watched an advertisement for Volkswagen.

In turn, the computer told a team of researchers which scenes I paid attention to, what I responded to emotionally and what I would go away remembering.

It was a far cry from the marketing industry’s traditional method of finding out what consumers think about their brands: asking them.

The problem is, when gathered in traditional focus groups, respondents can be swayed by those sitting next to them or by the presence of researchers. Alternatively, they may be unable to articulate their responses accurately. As a result, a rising number of marketers now prefer to analyse the response of peoples’ brainwaves to brands and advertisements by using the latest developments in neuroscience.

In recent months, these techniques have not just been applied to the marketing of finished products, but also to product development. “It’s about uncovering new undiscovered needs,” says Martin Lindstrom, author of Buyology , who has been studying the development of neuromarketing since its inception seven years ago. “A lot of manufacturers are struggling as it’s easy to come up with ideas consumers don’t feel they need.”

He cites the example of dishwasher tablets. Consumers are attracted to tablets embedded with a blue ball because, subconsciously, they believe they clean better. However, when asked in the context of traditional marketing methods, they claim no preference about colour.

“The main reason why [traditional market research often] fails is that we look at things from a conscious point of view,” says Mr Lindstrom. “We ask: ‘Do you like the brand?’ We ask the consumer to be incredibly rational and we know today from neuroscience that 85 per cent of the decisions we make are made by the unconscious part of brain.”

Neuromarketers believe their work will be especially useful for products consumers find hard to describe – particularly when they need to know consumers’ reactions to smell, taste and touch.

According to Neurofocus, the global market leader in neurological testing, consumer goods companies are even creating their own in-house testing units that mock up supermarkets. They can use them to change everything from shelf positioning to point-of-sale advertisements with the flick of a switch and monitor the shopper’s brain during the few seconds it takes to select a product.

Professor Gemma Calvert, co-founder of UK-based Neurosense, believes the future for neuroscience lies beyond products: “I see the spread of these tools into things like the financial sector - to understand how trust is built and broken down for the banks – how do you make us feel safe and secure?”

Anantha Pradeep, Neurofocus’s chief executive, believes the possibilities for neuroscience are almost limitless: “The challenge for us is to be focused because we could use it in any area of life which needs emotion and persuasion.”

But some advertisers fear this adherence to science could stamp out “light bulb” ideas and destroy creativity in the industry.

Neurofocus argues that mind-reading actually helps sell original thinking to companies that would otherwise stick with tried-and-tested methods.

“The principles [of neuroscience] are like the keys of a grand piano – you can do a lot with them,” says Mr Pradeep. “And we’re adding keys all the time.”

Perhaps a larger concern is that consumers will find it increasingly difficult to resist the pressure to buy.

“We believe we’re incredibly clever, but in reality we’re less and less immune,” says Mr Lindstrom. “There’s an urgent need to create ethical guidelines. It’s like a hammer: it can be used to put a beautiful painting on the wall or to hit someone on the head.”