Have you ever been shocked to when clients defected to to a competitor without a word of complaint?
We’ve heard this story from numerous clients.
Their question for us: “How could we have seen this coming? How could we have headed this off?”
This week we give you the one question (really!) that tells you how loyal your customers really are to your business, plus the top four things you need to know about using this tool.
1) So What’s The One Question?
“On a scale from 0 to 10, how likely is it that you would recommend us to a friend or colleague?”
Customer satisfaction surveys often overestimate customer loyalty. On average, at least 80% of the responders will say that they’re satisfied. And yet we know that many of them will switch to a competing business over the course of a year.
Fred Reichheld, a customer loyalty expert and author of “The Loyalty Effect” and “The Ultimate Question”, has boiled down years of thinking about this problem into this single, crucial question.
Here’s how you interpret the response:
|If the response is:||The customer is:|
|9 – 10||A promoter, who is loyal to your business, makes it a point to keep buying from you and to tell others about your business|
|7 – 8||A passive customer, who is satisfied but not enthusiastic about their relationship with you. They see no reason whatsoever to tell others about your company. Competitors can easily win their business.|
|0 – 6||A detractor, who is unhappy and feels stuck in a bad business relationship. The less happy, the more likely that they criticize your business to others and warn against it by pointing out the shortcomings.|
2) What Does The Score Mean?
Once you’ve asked the question, calculate your “net promoter score” (NPS) by deducting the % of detractors from the % of promoters.
For example: You survey 100 customers. 30% answered 9 or 10. 40% answered 0, 1, 2, 3, 4, 5, or 6. Your net promoter score is 30% – 40%, or a negative 10%.
It’s the “net” of your promoters less your detractors, in other words.
If your business has a negative score, you’ve probably got customers leaving the business as quickly as you can find new ones. Simply pick a handful of responses and start talking to your customers about what’s missing.
Owners and managers in the business should have these conversations. Don’t delegate this to junior sales or service reps. A defensive, argumentative or otherwise inappropriate response to a “detractor” customer can backfire very quickly. These conversations aren’t about selling or justifying or winning back customers, but about listening and learning so that you can start taking action.
If you have a positive score, pick a handful of high-scoring responses and start talking to these customers about what they find so remarkable about your business. Then, look for ways to systematize that magic so that it’s not lost as you grow. And trust us, if your score is positive – you WILL grow!
While it’s beyond the scope of this article, we’d also encourage you to work with your finance director to quantify just how much more profitable your most loyal customers are in your particular business. It’s not terribly difficult to do and it really helps focus your efforts when you understand the bottom-line impact.
3) Why Does Loyalty Matter So Much?
Loyal customers are your most profitable customers, even in large businesses with thousands of customers, where you might think every customer is the same.
1) A loyal customer who frequents your business is likelier to buy more and different services from you over time.
For example, a loyal customer starts with Yoga I, then Yoga II, and also eventually buys a yoga top, a yoga mat, and some custom yoga-themed jewelry. She also usually picks up an energy bar after class. Other customers simply sign up for the class and then drop out of sight once it ends.
2) They know your business and your product line, so you save selling effort and time when they buy.
Say your business specializes in high-tech products for body composition analysis, metabolic analysis, biofeedback, software, AEDs and other advanced tools and equipment.
Loyal customers think of you first – but only when they need to buy this kind of equipment. They don’t waste your time asking whether you carry treadmills or elliptical trainers, because they’re very familiar with your product line and they know that’s not your focus.
And you’ll find that you don’t have to jump through as many hoops – reference checks, product demonstrations, competitive comparisons – because they already know and trust you.
3) They also save you selling effort by telling other people about your business.
An enthusiastic and spontaneous recommendation is priceless. And because they know your business, the referrals they send you are fully qualified prospects – they’re usually a great fit for what your business does.
Potential customers who visit your business because of a personal recommendation are extremely likely to turn into paying customers. And you’ll usually find that the sales process is shorter and easier than it is with, say, walk-in customers or those who respond to an ad, for the reasons we outlined in #2 above.
For example, perhaps your wellness center offers a weight management program. Prospects who heard great things about it from a friend are much quicker to join.
4) Loyal customers are less likely to choose strictly based on price.
The intangible emotional value of the relationship they feel with your business is intertwined with the rational factors – features, advantages, benefits, and price – that support their decision. In fact, loyal customers often rationalize to themselves about why paying a higher price is the right decision.
We have a small neighborhood health club here in Dallas that charges roughly $120/month, at the top of the market. It’s got the basics, nothing special in terms of the equipment or facility. But its members love the personal attention and service. They don’t buy based strictly on price.
4) Why Does This Question Work So Well?
This question probes two dimensions of customer loyalty.
First, it taps into the rational aspects of customer decision-making. Do your customers think your wellness business offers the right store hours, equipment, programs, products, expertise, knowledge, and customer service at the right prices?
Second, it taps into the emotional aspects of customer loyalty – critically important in health and wellness businesses. Do your customers feel that you treasure their relationship with your business, that you treat the relationship with care, that your business really listens to them, and that you share their values?
5) What Should We Do With This Information?
First, avoid the trap of bad profits. We wrote about this in “Is Your Wellness Business Addicted To Bad Profits?”
These business practices produce vast quantities of detractors very quickly. People who feel trapped or taken advantage of make sure that everyone else they know hears about it.
Second, as you start understanding what motivates your most loyal customers, turn your owner or founder’s vision into a system. Many wellness businesses were created by a passionate founder with a real vision of how he or she wanted to help improve people’s lives.
However, as businesses grow, that focus on customers often gets lost as the owner becomes less hands-on in the business. That’s often when customer loyalty starts ot suffer.
Everything you do – hiring, firing, and rewarding employees, adding new products, your customer service policies, and more – should be done with a view to how you can preserve the vision of the business as it grows. That will strengthen customer loyalty.
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