This guide will teach you how to use customer loyalty metrics (NPS, CES, and CSAT) to improve customer experience and increase retention rates.
It was written in partnership with Bob Thompson, CEO of CustomerThink, which is an independent research and publishing firm focused on customer-centric business management.
The importance of customer loyalty metrics
Customer Experience (CX) is a key strategy to win the loyalty of today’s demanding customers. In recent years, research by CustomerThink, Forrester, and Gartner have found at least 70% of business leaders believe CX will help their companies differentiate in a world where products and services are increasingly commoditized, and competing based mainly on price is not a viable long-term strategy.
Why is there so much interest in CX? Brands that excel in CX outperform their rivals.
McKinsey’s research of 27,000 consumers in the U.S. found that “maximizing satisfaction with customer journeys has the potential not only to increase customer satisfaction by 20 percent but also to lift revenue by up to 15 percent while lowering the cost of serving customers by as much as 20 percent.”
This combination of loyalty-driven revenue growth coupled with a reduced cost of serving customers makes CX a powerful driver of long-term profitability. Over time, that results in a much more valuable brand.
An eleven-year analysis by Watermark Consulting revealed that CX leaders generated a total return that was 45 points higher than the S&P 500 Index and a stunning three times greater return than CX laggards.
You’ve probably seen these statistics and many more, providing an incentive to invest in CX improvement. Unfortunately, CustomerThink research of over 200 CX initiatives in 2018 found 75% were not able to quantify business value.
This guide will address one of the key factors in CX success–a Voice of the Customer (VoC) program–that is the number one differentiating the experience practice.
Read this guide to learn:
- What CX means at your company.
- How to use customer loyalty metrics to monitor CX progress.
- The best usage considerations for CSAT, NPS, and CES.
- Why effortless is not enough for CX leadership.
- How driving action is critical to CX success.
- How to get support for your VoC program.
What does CX mean at your company?
When launching a Voice of the Customer (VoC) program, it’s tempting to want to develop a survey and start collecting customer feedback immediately.
Resist that temptation. Take time to understand or help develop your company’s CX strategy first. That will make it easier to decide what questions to include, and how to prioritize action.
Industry experts agree that customer experiences include all interactions and the resulting customer perceptions. These interactions could occur throughout a customer journey including:
- Research and evaluation.
- Buying activities and the purchasing process.
- Product or service acquisition and usage.
- Solving problems with the help of customer service.
Managing customer experiences, also known as customer experience management (CXM), generally means making improvements to some of these interactions to deliver the brand promise and increase customer satisfaction. However, based on CustomerThink’s “CX at a Crossroads” study, not everyone agrees on what CX includes.
For instance, 74% of the CX leaders surveyed agreed that “By 2020, customer experience will overtake price and product as the key brand differentiator.” How can that be? If CX includes all interactions and perceptions, then it must include price and product. CX can’t overtake something it includes.
But, CX thought leaders view CX in a more holistic way:
“CX is a representation of everything an organisation does to contribute to the delivery of the ‘end to end customer experience’.” – Ian Golding, CX consultant
“CX (as seen from customers’ eyes) includes product/pricing/interactions plus customers’ behind-the-scenes efforts to select, get and use a solution toward their goals. The behind-the-scenes efforts include integrations throughout select/get/use with an emphasis on “use”–integrations with various people, environs, hardware/materials, software, and processes.” – Lynn Hunsaker, ClearAction Continuum
“Customer Experience is what wraps around product and price.” – Colin Shaw, Beyond Philosophy
So, when is an organization not practicing CXM? According to market researcher and CX consultant Dave Fish of CuriosityCX, CXM should not include companies that only emphasize one element such as product or price or customer service and ignore the larger narrative of what customers are experiencing on their journey.
The implication is that key stakeholders within your company probably have different perceptions of CX/CXM. Do you know what they are? Some may have a holistic perspective that experts recommend, but others may believe that customer experience is just another term for customer service, process improvement, or customer surveys.
Therefore, it’s imperative to clearly define the scope of CXM at the company and communicate and secure agreement to that scope with sponsoring executives and key stakeholders. This can be accomplished by meeting with stakeholders early in the planning and strategy development process to:
- Understand perceptions about CX and CXM.
- Differentiate CXM from Voice of the Customer programs, customer service, etc.
- Clearly define the organization’s intended experiences.
- Identify key business issues where CXM might help.
- Assess potential buy-in and support.
It’s also critical to define what CX success means at your company. While there is often conceptual agreement that improving CX and a VoC program is the right thing to do, “show me the money” is more likely to be the attitude of senior executives.
That’s why, in CustomerThink’s CX study, winning is defined as quantified benefits or competitive edge. Beliefs and feelings are usually not enough to satisfy executives with budget authority. CX leaders must show how CXM investments link to business value.
Using customer loyalty metrics to monitor CX progress
If CX strategy is a plan, then customer loyalty metrics (also known as customer metrics) are the necessary tools to monitor progress against that plan.
Think of them as relationship health indicators. Increases in these metrics should ideally indicate that customer perceptions are improving as well as desired business outcomes like improved retention rates, greater purchase frequency, size of the shopping cart, etc.
Overview of customer loyalty metrics
Customer Satisfaction Score (CSAT) has been used for decades. Academic research finds that it works well as a general-purpose loyalty metric. Enterprise Rent-A-Car, a top customer-centric brand, has used CSAT effectively by focusing on increasing its “top box” (very satisfied) percentage on a simple question about whether customers are “completely satisfied with their last rental experience.”
In 2003, loyalty consultant Fred Reichheld proposed a simple method to measure loyalty, called the Net Promoter® Score (NPS). Based on responses to a “would you recommend” question on a 0 to 10 scale, the percentage of Detractors (0 to 6) are subtracted from Promoters (9 or 10) to get the NPS. Prominent brands like Amex, GE and Intuit have embraced this method with the belief that increasing scores will drive revenue growth, although that has been disputed by some studies.
More recently, Customer Effort Score (CES) has gained popularity as a metric aimed at reducing effort in customer service or other routine interactions. However, CES hasn’t been established as the best general-purpose metric for all situations. The main concern is that while easy is a widely desirable CX attribute, it is usually not the sole driver of customer loyalty.
The big picture is that NPS is most commonly used overall—by 83% of CX initiatives. CSAT isn’t far behind at 69%. On average, each respondent reported their organization used three different metrics, while only 19% of all respondents reported using just one metric (NPS getting the lion’s share).
As you can see from the graph above, Starting CX initiatives are heavy users of NPS and Likelihood to Recommend, but that enthusiasm wanes with maturity.
Winning CX initiatives tend to use NPS and CSAT somewhat less, and Custom Metrics substantially more, than those in a Developing stage. CustomerThink research has found this reflects the experience of savvy CX leaders that there is no one metric that is best for all situations.
Different types of loyalty require different metrics. For instance, in a study of the telecom industry, loyalty researcher Bob Hayes concluded that retention, new customer growth, and average revenue per customer require different questions.
CX leaders shouldn’t pin their hopes on any one metric. Instead, do proper research to select the metrics that predict the desired business outcomes.
All business is relative
CX experts and practitioners suggest that competitive positioning should not be ignored if companies intend to “compete based on customer experience.” It’s certainly possible to make CX improvements, see scores rise, and not generate the expected business results if competitors are doing much the same thing.
In fact, recent Forrester research suggests that CX industry improvements are stagnating for that reason, as about half of companies are locksteppers–just keeping pace with competitors.
Industry experts generally agree that competitive benchmarking can be helpful. Larger companies tend to rely on syndicated benchmark research, says Bob Hayes. Smaller companies with a limited budget can get insight by asking ranking questions about competitors in feedback surveys, which has been found to be a good predictor of up/cross-selling.
Tim Keiningham, loyalty researcher and co-author of “The Wallet Allocation Rule,” says that if the growing share of wallet is important, then it’s important to assess whether “customers perceive your brand as better, the same, or worse than competing brands they also use.”
His research has found that by knowing your brand’s rank and the number of competing brands that a customer also uses, you can accurately predict the share of wallet using a simple formula.
Gautam Mahajan, an expert in Customer Value Management, argues that the “true test of loyalty is repurchase which is based on value,” which must be considered relative to competitive alternatives.
Even if a customer has given high or increasing customer satisfaction ratings–positive signs in CXM thinking–a better value offered by a competitor may cause a defection. A calculation of Customer Value Added (CVA) can help determine the competitive position (CVA = Perceived worth of your offer / Perceived worth of competitive offer.)
One caveat. Using customer loyalty metrics for any purpose, including competitive comparisons, assumes that scores are not gamed by employees who are overly incentivized (via bonuses, rewards, or penalties) to beg or cheat to increase scores.
This is an unintended consequence of some well-meaning business leaders who want to encourage employees to deliver better experiences, but make higher scores the goal instead.
How to use CSAT, NPS, and CES
This section will discuss how best to use the three most common customer loyalty metrics–CSAT, NPS, and CES. Please keep in mind that these are general guidelines and your mileage may vary. Every industry and company has a unique set of characteristics, so consider this as input to your planning process, not a cookbook to implement.
How the metrics are calculated
CSAT is assessed by asking customers: “How would you rate your overall satisfaction” with your company and its products, services, and interactions.
A five-point scale is most commonly used, with options very unsatisfied, unsatisfied, neutral, satisfied, and very satisfied. Translate each response into a number from 1 to 5, and your CSAT score can be easily calculated.
There are two ways companies can calculate CSAT: an average of 1-5 or by focusing in on the 4-5 responses.
GetFeedback recommends using this formula: (Number of 4 and 5 responses) / (Number of total responses) x 100 = % of satisfied customers.
While you can use CSAT as an average, that isn’t as useful as calculating the percentage of those customers who consider themselves satisfied. If you stop and think about it, that makes sense—the metric is looking at the percentage of happy customers specifically.
Some organizations use a seven-point scale for more precision, while others prefer a three-point scale for simplicity to help improve response rates.
The final score is typically represented as a percentage of the maximum. With a five-point scale, for example, a CSAT rating of 80% means that the majority of customers are giving a satisfied rating (4 out of 5).
NPS is based on the question “How likely is it that you would recommend this company/product/service to a friend or colleague?” using a scale from 0 (not at all likely) to 10 (extremely likely).
The overall score is calculated by subtracting the percentage of Detractors (0 to 6) from Promoters (9 or 10). Such as: (% Promoters – % Detractors = NPS).
Essentially, NPS is a derivation of a common loyalty question “Likelihood to Recommend” that emphasizes the two ends of the scale. The theory being that Promoters are the most valuable customers, and Detractors can do the most damage.
The CES question asks customers their agreement with the statement: “The company made it easy to handle my issue,” using a seven-point scale from 1 = strongly disagree to 7 = strongly agree. This question is typically asked immediately after an interaction (more on this follows).
The score is calculated in various ways. It can be measured as the percentage of respondents that answer 5 (somewhat agree) or higher, because researchers found that increasing scores to 5 had a strong effect on increasing retention, while increases beyond that point had greatly diminishing returns.
Another way to calculate CES is by dividing the sum of all individual customer effort scores by the number of customers who provided a response. Such as: (Total sum of responses)/(Number of responses) = CES score.
Which metric is “best”?
CSAT is a statistically sound metric often based on a simple mean (average) score. Most everyone is used to answering satisfaction questions or rating brands on a 1-5 scale, so it’s easy to understand and implement.
However, the wording of the CSAT question is not standardized, making it difficult to compare scores from different organizations. And, merely satisfied customers is a fairly low bar that may give organizations a false sense of security because it doesn’t necessarily lead to loyalty.
NPS has some technical challenges because it’s calculated by subtracting two percentages. Two companies can have the same NPS, but quite different compositions of Promoters and Detractors.
For example, an NPS of 20 can be achieved with 60% Promoters minus 40% Detractors or 25% Promoters minus 5% Detractors. Still, NPS is quite popular in executive circles because it’s easy to understand and communicate the concept of increasing advocacy. As a practical matter, technical issues don’t seem to matter much to brands that use NPS as a high-level measure of brand affinity.
CES is a trickier proposition. If the primary value proposition of your brand is fast and easy experiences, à la Amazon, then CES could work well as a brand loyalty indicator. However, for the rest of us, CES is best used in customer service or other routine experiences where low effort is the main loyalty driver.
In 2015, the International Journal of Research in Marketing published a paper analyzing the ability of different Customer Feedback Metrics (CFMs) to predict customer retention. The study concluded that while there was no single best metric across industries, in general, “changes in top-2-box customer satisfaction, followed by the official NPS, have the highest impact on customer retention.”
The study found that “combining CFMs tends to improve predictions” and suggested that firm use a dashboard of CFMs. This is exactly what CustomerThink research found in the 2018 research. Companies may start out using NPS or CSAT, but over time tend to use multiple metrics including composite indicators that can be proven to link to desired business outcomes.
CustomerThink research in 2014 and 2018 found the choice of metrics is not a major factor in CX success, but rather how the organization acts on the insights. Put another way, a company that aggressively acts on customer feedback with a less-than-optimal loyalty metric will outperform those that spend too much time searching for the perfect one number to represent customer loyalty.
Survey design and distribution tips
The first thing to consider is whether you are measuring the health of the overall customer relationship, or getting feedback after a recent experience or touchpoint.
Relationship surveys are typically conducted at least annually to get an overall assessment of how customers perceive the organization and the products, services, and support delivered. Some organizations survey more often, but be careful to not overload current customers with survey requests.
For example, at Sun Basket, NPS-based relationship surveys are sent monthly to an 8% sample of current customers. Brett Frazer, the head of customer service for this premium meal kit delivery service, says this allows the firm to “get data on a more frequent basis to assess progress.”
NPS and CSAT can both be used effectively for relationship surveys. In addition to the main loyalty question, additional diagnostic questions should be asked about relevant attributes such as product quality, service responsiveness, etc. These should be developed to assess elements of your firm’s “brand promise.”
Furthermore, it’s almost always a good idea to ask at least one open-ended question to give customers a chance to explain their ratings, or to share issues not represented in the survey.
How long should relationship surveys be? There is no magic answer for every situation, but industry experts generally recommend limiting surveys to 10 to 15 questions maximum which can be answered in 10 minutes or less. For deeply invested customers, it’s possible to get good results from longer surveys, especially if you make it clear that customer feedback will be taken seriously.
Some companies go to the other extreme, asking just one loyalty question followed by an open-ended question to explain why. This requires analysis of the verbatim comments to understand the issues related to ratings.
It’s also important to capture feedback after individual touchpoints as customers interact with different parts of the organization. For example, a pop-up web survey can get feedback as customers or prospects are interacting with a website. Service interactions are another excellent opportunity to ask for feedback, ideally on the same channel that the customer used to get service.
For touchpoint surveys, the goal is to understand how well the organization performed at that point in the customer journey, while memory is fresh. CSAT and CES can both work well. The NPS “would you recommend” question can be confusing for customers because referral behavior is usually based on more than just one recent interaction.
Touchpoint surveys should be as short as possible to maximize the response rate. Some experimentation may be required to find the best number and avoid survey fatigue. At Sun Basket, for example, post-service surveys are 5-8 questions, sent to 50% of cases mainly by email. Survey requests are limited to one every 45 days.
Why an effortless experience is not enough for CX leadership
CustomerThink’s research found that most CX initiatives are focused on improving processes–within and between stages of a journey–to improve ease or efficiency.
While it’s clear that process improvements are often necessary, Winning CX initiatives also bring emotion into the mix. When asked to select very important attributes of experiences that drive customer loyalty, functional attributes dominated with 83% of all respondents selecting easy. However, Winning CX initiatives prioritized emotional and human attributes much more highly.
Rick Parrish, a Principal Analyst at Forrester focused on CX, found in a 2018 consumer study that emotion had a bigger impact than effectiveness or ease: “Elite brands provided about 22 emotionally positive experiences for each negative one; the bottom 5% of brands provided only two emotionally positive experiences for each negative one.”
A case in point is TurboTax, says Parrish, which found striving to minimize clicks actually hurt consumer experiences and hence loyalty. A more loyalty-building approach features TurboTax adding an extra step to ask “How are you feeling about doing your taxes?” Subsequent dialogs are customized based on whether the answer is good, not so good, or don’t ask.
After filing taxes with TurboTax, customers are left on a high note by receiving a congratulatory message and assurance they are finished with the process. According to Parrish, “traditional designers would balk at that, since it adds pages, clicks, and wait times, but it improves the experience.”
This example illustrates that emotion can be designed into automated processes. But this study, like several others previously conducted by CustomerThink, shows that human-based interactions are much better at creating memorable experiences.
Common positive emotions include: appreciated, confident, grateful, happy respectful, and valued, according to Forrester’s research. Brands should design for emotions they want to generate, and not assume that being easy is the only thing that matters, nor that every touchpoint requires a wow.
Check out the infographic below for more insight into effortless versus emotion.
Don’t be shy, embed this cheat sheet in your own blog post or website. Actually, we dare you to.
Driving action is critical to CX success
CustomerThink’s research found five key practices where Winning CX initiatives may be getting an edge. As you can see below, the Voice of the Customer practice is ranked first!
- Take an outside-in perspective to understand and act on customer feedback.
- Develop customer journey maps to diagnose and improve experiences.
- Have a commonly understood brand vision and promise that guides CX strategy.
- Create a business case to connect CX improvements with key business outcomes.
- Support CX efforts with committed senior executives who are personally engaged.
Since VoC is an obvious starting point for any CX initiative, it was somewhat surprising that the Developing score of 3.6 is the second-lowest of the eight practices assessed, with only journey mapping earning a worse score (3.5).
Assuming effective feedback sources are being used, the key challenge is how to make good decisions and act. Why is feedback not acted upon? Industry experts report a number of obstacles, including conflicting data, limited analytic skills, lack of the right systems for analysis and communication, and insufficient clout by the VoC group to drive action.
Avis Budget Group had many years of quantitative survey data, collected at the rate of about one million responses per year. Eric Smuda, VP of customer insights and experience, wanted to shift the focus from data collection to action.
The post-rental survey was redesigned and shortened to about a dozen questions that could be answered easily on a mobile phone, including open-ended questions. Equally important, the survey was distributed within 15 minutes of the car rental return, and rules were set up to alert local managers immediately based on very critical survey responses.
While there are system and analytic issues to solve, and appropriate customer metrics should, of course, be used, CustomerThink’s view is that CX Winners are mainly differentiated by a bias toward action even in the face of conflicting or incomplete data.
Action could be immediate, even real-time in the case of social media or mobile feedback, or take much longer if the solution requires system or policy changes.
These findings are consistent with CustomerThink’s 2014 study of 25 customer-centric practices, which found “closing the loop on customer feedback” had the second-highest impact on business performance.
Getting support for your VoC program
After a year of research, CustomerThink concluded that the inability to create and sell a CXM business case internally is the root cause of much of the industry frustration with CX performance. To be clear, a lot of good work is being done by CX professionals. Two-thirds believe that “our CX initiative has helped our company improve its business performance” and cite many benefits.
Unfortunately, belief doesn’t cut it in most businesses. When asked “Which benefits do CX executive sponsors want to see in order to continue funding the CX initiative?”, increased in customer satisfaction/loyalty topped the list for all respondents followed by revenue growth.
However, executives at companies with Winning CX initiatives were much more likely to require a “financial analysis showing a positive payback for the CX investments.” While CX initiatives are rightly concerned about increasing customer satisfaction, clearly this must be linked to other business metrics.
Why shouldn’t CXM be considered a cost of doing business? Elite brands, where CXM is deeply integrated into operations, may not see a strong need for formal justification. For most companies, however, investing in practices, people, and technology requires CX leaders to compete for budget dollars just like other department heads.
When sponsors have no expectations of benefits, a change of leadership can leave CX leaders flat-footed. For instance, in one case an entire CX team was disbanded at a large technology firm after a change of leadership because there was no business rationale.
A unique value for each stakeholder
Building a business case is not just about an ROI calculation. It’s about building relationships and trust with key stakeholders. Spend time understanding their key pain points and business goals, and strive to find ways that CX and VoC can help them succeed–individually.
Conducting interviews is an effective way to uncover unique opportunities for each stakeholder. Consider the following examples.
Marketers are usually tasked with brand building, lead generation, and customer communications. B2B marketing expert Chris Ryan of Fusion Marketing Partners advises that, instead of just dealing with problems, CXM could help marketing identify highly satisfied customers and “look for chances to make heroes out of your customers.” Getting advocates to participate in case studies and referral programs would be a big win for marketers, and thus a win for CX leaders, too.
Senior-level marketers are also seeking better customer insight, says VoC marketing expert Ernan Roman of ERDM. CX leaders can add value by helping to explain why engagement or purchasing rates are down, as well as what would motivate customers to continue buying, and how to effectively launch new products. Furthermore, personalization is a long-standing desire with limited success in most companies–another CX opportunity.
In recent years, the job of sales professionals has changed dramatically due to buyer self-education via the internet and social media. Reps, when they do engage with buyers, must be better prepared. CX leaders could bring buyer research to the table to show what types of experiences are more likely to lead to closed deals. For example, AI-powered speech analytics can help analyze sales interactions to highlight improvement opportunities like reps talking too much or discussing pricing too early in the call.
Barry Trailer of Sales Mastery points out that some sales obstacles are outside of the direct control of sales professionals–like Byzantine contracts and overly aggressive lawyers that frustrate buyers and sellers alike. CX leaders could get support by sales leaders by tackling such cross-organization issues that thwart deals.
Similarly, customer service/support organizations can get blamed for product and policy issues. Such as, according to Jeremy Watkin of outsourcer FCR, a policy of never giving credit to customers. CX leaders could help the VP of customer service put a cost on this policy, making the case to give agents more flexibility.
And let’s not forget the “product” organization. In CustomerThink research, the solution (product or service) being purchased and used is worth an average of 40% of the impact on customer loyalty. Don’t make the mistake of many CX professionals and consider process issues as in the scope of customer experience.
For example, software companies must compete based on the features, functionality, and usability of the solutions offered. But customer feedback can lead to a wishlist that’s hard to prioritize. athenahealth, which provides solutions to the healthcare industry, had thousands of product update possibilities, according to senior VoC manager David Geary. An analysis of feedback from multiple sources found an update to managing outstanding patient balances had high impact with both front line and executive staff at key accounts, thus creating a compelling business case for product managers.
Top management wants numbers
Still, numbers matter, especially to senior executives. According to a Senior VP of Marketing of a large technology firm, “conjecture and anecdotes are not compelling.”
It’s important to bring hard numbers plus customer quotes to drive action. In one case, the CX team surfaced a communications issue about changes in account ownership. The solution was developed by a cross-functional team, with an estimate of costs and benefits supplemented with an analysis of verbatim comments.
Jack Dean, a former CFO now with sales consultancy FASTpartners, says CX investments generally have a more challenging financial case if the goal is revenue growth. A formal ROI analysis is easier with cost reduction, so he suggests starting there and then following with growth.
For growth-oriented companies, a CXM case that builds on increasing average order size or revenue per customer would be compelling to executives. On the other hand, an established, slower-growing market leader may be more interested in customer retention. Either way, “executives aren’t looking for precision,” says Dean. They want to understand the assumptions and analysis, so they can make a good decision.
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In the retail industry, consultant Chris Petersen of Integrated Marketing Solutions sees a “host of metrics that could apply in showing the potential impact of customer experience on business outcomes.”
- Improving conversion rates by optimizing online engagement.
- Increase the size of market baskets (average order volume).
- Impact on customer lifetime value, at an individual or household level.
- Reduction in returns in customer service.
Peterson cautions that it’s not a simple matter of showing that a CX investment results in an immediate increase at the cash register.
One technique that can shorten the internal sales cycle is a Proof of Concept to assess the impact of CX changes. For example, a large US electronics retailer changed its PC buying experience to require engagement with a sales associate. After some experimentation and employee training, they were able to increase sales of high-margin warranty services without negatively impacting customer satisfaction.
A strong Voice of the Customer program is an essential ingredient in CX success. To help your organization truly win, you must align your efforts with current CX and business strategies.
Should you spend time finding the right set of customer loyalty metrics? Of course. But don’t forget that improvement requires action. Make sure that customer feedback is used to simulate the changes needed to make experiences better for customers. That, in turn, will help your business prosper.