Bill Gates once said, ‘your most unhappy customers are your greatest source of learning.’ However LEAP’s John Raftery, who works closely with SMEs, explains why measuring customer complaints can be problematic and unreliable. Although he acknowledges the value of customer feedback, he suggests another way to measure customer satisfaction that is both cost effective and powerful in its impact on the business.
John, what is an effective way to measure customer satisfaction?
One of the issues that come up regularly when working with clients in the SME sector is that managers don’t have a handle on how satisfied their customers are. And if they are trying to measure customer satisfaction they usually go about it the wrong way. Sometimes they measure complaints, which is absolutely the worst way to measure customer satisfaction. Measuring complaints does not give you any real sense of customer satisfaction. Another thing they do is carry out surveys, and they can be complex and expensive and often difficult to interpret.
Net Promoter Score
What I always recommend to customers to use is a very simple, very effective and inexpensive methodology known as the Net Promoter Score (NPS). It’s being used more and more in business. The beauty of it is the simplicity; you are only asking the customer one question. ‘How likely is it that you would recommend this product, service or company to a friend or colleague?’ And you get them to rate it on a scale of 1 to 10. The people who score anywhere from 1 to 6 we regard as detractors, that is people who have had a bad experience and are likely to relay that bad experience to others.
What the higher scores mean
The people who score between 6 and 8 are passive or neutral customers, they are happy to buy your product or service, but if a better deal comes along they will go with it; they are not loyal customers. Then we have the people at the top end who score a 9 or 10, these are the promoters and they are vital to your business. Obviously businesses need to increase the number of promoters of their business.
How to calculate your Net Promoter Score
The net promoters score is calculated very simply; you take the percentage of detractors away from the percentage of promoters and you get your net promoters score. So you are actually measuring your customer’s satisfaction by using just one number. That number is easily calculated at very little expense. You can carry out NPS surveys continuously or periodically and watch the number increase as you carry out customer satisfaction improvements in the business.
Other advantages of the NPS
Another advantage of the NPS is that it is fast becoming an industry standard score so you can measure yourself against other companies in your industry. Apple computers, for example, have a high score at 67. Compare that to Sony who have an NPS of around 30 in computer hardware. So you can begin to benchmark yourself against other similar companies. So the NPS is very simple, inexpensive and easy to analyse but very effective in giving you one single score regarding the level of customer satisfaction.
Why is it unhelpful to analyse customer complaints?
For two reasons; one is because it’s too late in the process. You’re dealing with an event after it has occurred. Secondly the people who are gathering the information on customer complaints will sometimes supress information, and what is regarded as a customer complaint can become subject to a lot of debate, that is whether it’s a genuine complaint or not. You can end up with a lot of messy data that you can’t trust. And besides, most customers don’t complain anyway, they simply go away, they vote with their feet.
Take for example a restaurant. You get a customer complaint. That customer is seen as the problem in some peoples’ eyes. You could be serving bad food all night and no one will say anything, but they won’t come back to your restaurant again. If someone complains they are seen as awkward or disruptive, and if the boss doesn’t welcome complaints and he comes down hard on the staff, then they won’t tell him about complaints.
Customer complaints – an opportunity for improvement
People look at a reduction of customer complaints as progress, but I always get suspicious of that. I think an increase in customer complaints is progress, because it means staff are engaging more with customers. People often feel uncomfortable about customer complaints when they should welcome it, because it gives the business an opportunity to find out where they’re going wrong. Customer complaints can be an opportunity for improvement.
However, in some sectors like the hotel industry for example, companies can often become overwhelmed by the volume of survey data. There can be information overload from customer feedback. And if the senior managers, or the owner, sits on that information and doesn’t share it with the rest of the staff then they don’t know what’s going on. They can’t figure out what actions to take.
Set Clear Objectives and Measure Performance
The NPS cuts through all that and identifies where the business is now and where you want to be; it’s a clear starting point. Once that score is established you can then decide what you are going to do to improve it. With a clear set of objectives and a new set of KPIs centred on actions and accountability, you can measure performance and see if you’re objectives are helping to increase your NPS.