Customer experience management professionals use self-reported "likelihood" questions to measure customer loyalty. In their basic form, customer loyalty questions ask customers to rate their likelihood of engaging in different types of loyalty behaviors toward the company, including behaviors around retention (likelihood to leave), advocacy (likelihood to recommend) and purchasing (likelihood to buy different products). These loyalty questions typically employ a "0 to 10" rating scale that includes verbal anchors at each end of the scale to indicate low or high likelihood (e.g., 0 = not at all likely to 10 = extremely likely; 0 = least likely to 10 = most likely).
While it is generally accepted that higher likelihood ratings represent higher levels of loyalty, we are left with some ambiguity about what defines "good" likelihood ratings. How much better is a score of 8 than 7? Is there a meaningful difference between a rating of 7 and 6? I explored the meaning of likelihood ratings in the present analysis.
Data are from a customer survey of a large automobile dealership located on the east coast. The current analysis is based on 30,236 respondents over a 4-year period (2010 thru Nov 2013) across 20 different locations. The survey asked customers six questions, including two similar loyalty questions:
- How likely is it that you would recommend your sales person to a friend or colleague? Rating options were on a rating scale from 0 (Least Likely) to 10 (Most Likely).
- Would you recommend your sales associate to a friend, relative or neighbor? Response options were either "Yes" or "No."
Figure 1 illustrates the relationship between these two different loyalty questions, showing the percent of "Yes" responses of second loyalty question across each of the 11 response options of the first loyalty question. Generally, the percent of customers who say they would recommend the company drops as the likelihood to recommend ratings drop. We see a few interesting things when we look a little closer at this figure:
- There is no major difference between ratings of 8, 9 and 10 with respect to the percent of customers who say they would recommend. For each of the top likelihood scale values, nearly all (over 99%) customers say they would recommend.
- Likelihood ratings of 0 through 6 represent negative loyalty responses; for each of these likelihood values, most customers would not recommend.
- There is a substantial increase in loyalty from a likelihood rating of 6 (38% say "Yes") to 7 (80% say "Yes") .
There are few implications regarding the results of the current analysis. First, companies use customer segmentation analysis to create homogeneous groups of customers to target each group with specific marketing, sales and service initiatives to improve or maintain overall customer loyalty. The developers of the Net Promoter Score segment customers into three groups based on their likelihood rating: Promoters (ratings of 9 or 10), Passives (ratings of 7 or 8) and Detractors (ratings of 0 through 6). The results of the present analysis, however, suggest a slightly different segmentation. The results show that customers who give a likelihood rating of 8 are more similar to customers who give a rating of 9 or 10 (Promoters) than they are to customers who give a rating of 7 (Passives).
Second, the segmentation of customers based on the NPS trichotomy seems arbitrary. The current results supports a slightly different segmentation of customers into different, more homogeneous groups. These three new customer segments are:
- Strong Advocates: Customers who give a likelihood rating of 8, 9 or 10. Over 99% percent of Strong Advocates say they would recommend.
- Advocates: Customers who give a likelihood rating of 7. About 80% of Advocates say they would recommend.
- Non-Advocates: Customers who give a likelihood rating of 0 through 6. On average, 84% of Non-Advocates say they would not recommend. These customers are labeled Detractors in NPS lingo. The relabeling of this group of customers as "Non-advocates" more honestly reflects what is being measured by the "likelihood to recommend" question. See Word-of-Mouth Index that more fully explores this notion.
Finally, it appears that all Detractors are not created equal. While ratings of 0 through 6 do represent low loyalty, a likelihood rating of 6 is a little more positive than the lower likelihood ratings. Targeting improvement initiatives that blanket all are typically directed at customers who report low levels of loyalty, those giving a likelihood rating of 6 or less. However, it might be beneficial to further segment these at-risk customers to target improvement initiatives to customers giving a rating of 6. Recall that a likelihood rating of 7 results in a substantial increase in recommending. Moving customers from a likelihood rating from 0 to 1 or 1 to 2 does very little to increase recommendations. Moving customers from a likelihood rating from 6 to 7, however, results in a substantial increase in recommending.