Measuring Customer Loyalty
by Katie Goodell
It’s easy to pick out the most loyal sports fans.
Team jersey, foam finger, stickers on their cars, season ticket holders… but how do we measure or evaluate the loyalty of our customers? Loyalty can be defined as a strong feeling of allegiance. Customer loyalty to your company indicates stability and growth in business.
As marketers, we’re constantly dreaming up ways to strategically increase a sense of customer loyalty: incentive programs, discounts for existing customers, social media interaction, community engagement. It’s important to be aware of the relationship and connection (or lack thereof) your customers have to your brand, especially in industries in which customer retention is the name of the game. Evaluating exactly how strong that sense of allegiance might be is also important to help guide and validate your marketing efforts.
Surveying your customers is a direct and effective way to learn more about their loyalty. But you can’t just come out and ask “Hey: how loyal would you say you are to our brand?” It might be helpful to ask “How satisfied are you with our service/product?” A simple satisfaction question, however, normally addresses a customer’s emotional response to your brand, or a reflection on past experience. With loyalty, we also want to measure affective and behavioral response, as well as the customer’s potential or intentions for the future.
You can also ask open-ended questions like “What is it about our company that keeps you as a customer?” or “What would cause you to discontinue our service?” and get valuable insight into customer psyche. But often it can be even more helpful to use quantitative measures, such as scoring your customer base’s loyalty. That way you can compare scores over time, or use to compare with the loyalty scores of your competitors’ customers.
Here are a couple Likert response scale questions the Pivot research team likes to include in customer feedback surveys that get at that quality of loyalty in a practical way. These apply well to companies who are offering an ongoing service to their customers:
“How likely are you to switch to a different provider?”
For this question, we typically use a scale of 1 to 10 where 1 = Not at all likely and 10 = Very likely. This question can give you a sense of potential customer “churn,” or likelihood that a customer will leave (and hopefully a sense that many of your customers won’t switch and want to stay!). This also works well to get a sense of general behavior predictions within your customer base.
And our favorite question to measure customer loyalty:
“How likely would you be to recommend your current provider to a friend or coworker?”
Pivot uses this question to find the Net Promoter Score for a company or service. The concept of Net Promoter Score was developed by a researcher named Fred Reichheld in 2003. His employer, Bain & Company, first used this measuring tool to assess loyalty among customers. Since then, it has become a common way for brands to assess their customers’ loyalty year over year, and compare to the loyalty of their competitors’ customers.
For this one, we use a scale of 1 to 10 where 1 = Not at all likely and 10 = Very likely. The way you find the Net Promoter Score (NPS) is first to divide your customer base into three groups based on their answer to the “likelihood to recommend” question: the Promoters (those who answer 9 or 10), the Passives (7 or 8), the Detractors (answers of 1 to 6).
Promoters: These people who answered 9 or 10 when asked if they’d recommend you are your biggest fans. The foam finger-and-season-ticket-holder types. They are the pep club of your brand, out spreading the good word about what your company has to offer.
Passives: The middle-of-the-roaders probably wouldn’t say anything to hurt your reputation, but there’s clearly something that’s keeping them from giving a 9 or 10 response. They may have a team jersey, but are more of a fair-weather fan – they’ll cheer for you in the playoffs but probably not display a team flag in their yard or bring their friends to games.
Detractors: These people are not likely to do any advertising for you, and if they talk about you it may very well be negative comments and criticism. They are hurting your reputation among the community and your potential market. They’re either rooting for a different team or, at best, very dissatisfied with this year’s line-up.
To calculate the Net Promoter Score, you determine the percentage of ratings that fall within the Promoter and Detractor groups. Then subtract the percentage of Detractors from the percentage of Promoters. If 35% answered 9 or 10, and 10% answered between 1 and 6, your Net Promoter Score would be 35 minus 10 for a score of 25. If you had 67% of people in the Promoter category, and 22% as detractors, your NPS would be 45.
The very best possible NPS you could get would be 100, and the very worst would be -100. This common measure has been used in a variety of industries, and different research companies have set benchmarks by industry. You can see how if might vary across different types of business – you’re probably more likely to recommend a grocery store than a car rental agency. On average, a good NPS would probably fall between 15% and 40%.
Again, the valuable part of this metric is you can use it to compare your company’s NPS to the NPS from last year, or to your competitors’ scores. Having a grasp on your customers’ loyalty can encourage and spur on sales and marketing efforts. Loyalty can seem like an intangible quality, but it is a powerful indicator of success for your brand. Using good research methods and tactics such as the Net Promoter Score, you can evaluate the loyalty of your customers in a measurable way. With this tool, you’ll be on track to evaluate, grow, and satisfy your fan club.