Paul Greenberg on the limits of NPS and its replacement

Paul Greenberg, president of the 56 Group LLC, shares his insight on the limits of the Net Promoter Score, what it means in the age of the social customer, why its time has passed. Customer lifetime value and an intriguing new metric -- customer referral value -- could ultimately replace it.


Read the full transcript from this video below:  

Paul Greenberg on the limits of NPS and its replacement

Barney Beal: Tell us a little bit about what you see as a good CRM
Metric and a bad CRM metric, and it's place in the industry these
days.

Paul Greenberg: Well, it's interesting. With the rise of Social CRM now,
everybody's kind of wrestling for what kind of metrics matter, and there
are a lot of questions as to whether any of the existing metrics do or
don't. But there are two things. One is, of course, because advocacy is
kind of the end result being sought, when it comes to Social CRM, you
hear a whole lot of talk of course about net promoter score, NPS. Well,
honestly, it's way over used. For what it is, it's OK. Meaning, it's kind of
this raw, base way of looking at the fact of whether you have more or
less advocates but that's really. It doesn't do a whole lot more. You don't
get any granular understanding of impact on the financials or actual
value that you can measure. It's just simply we've got this many
advocates, we've got his many detractors. Ten minus nine is one.
I have one more advocate.

Barney Beal: So it's kind of a starting point?

Paul Greenberg: Yes, and it served its purpose. But it's purpose,
it's time, is actually over, basically. So what you have now, which
is really interesting is that one of the core metrics that has existed
forever is actually the starting point for the new set, which is
customer lifetime value. But even there the limitation has always
been that it's a transactual kind of metric. Meaning here is the
value of your customer over the period of time that you assume
will be his life with your company. It could him and his family or her
and her family, but that's where it tends to stop. We have this whole
idea of social customer now.

The question is referrals have an indirect impact on revenue,
so how do you measure it? Well, there's this guy. He's a
professor at Georgia State University, Dr. V. Kumar.
Great guy. I almost poked his eye out once. It's a long story.
Dr. Kumar wrote a book called "Managing Customers for Profit."
He talks about extending customer lifetime value, and one of the
two metrics, the one that's most specific to what we're talking about, is
called customer referral value. Here's the interesting thing, and you'll
see how it impacts NPS in just a second. He said that in order to
understand customer referral, which is indirect revenue impact, there
Are four questions you have to ask in order to do this. You'll recognize
the first one: Would you recommend this company to someone you
know? The hardcore, standard, net promoter score, ultimate question
of Fred Reichheld. But here's the deal, and this one is hilarious in a
way because what you're about to hear is a combinations of both
an epiphany and also a how could I miss this one.

Here's question number two. Did you recommend this company to
someone you know? Which is kind of obvious, and what he found,
and I'm a little fuzzy on the exact number but it's roughly, he found
that in surveys totaling15,000-plus people - I think it was either
6,000 Telco and 9,000 financial services or the other way around,
but about 15,000 people responded – that about 34% actually did,
meaning net promoter score actually ultimately is just a question
of intent, and that's not good enough. That might be a nice feeling.
Yeah, I like you for the moment enough to do that, but when I think
about it later I'll be too busy. Question 3 is then the action point.
Question 3 is: Did they become a customer? And Question 4 is: Did they
become a profitable customer? Now, if you think about that sequence that's
actually a measure of Social CRM in every sense.

I'll give you a specific example of somebody who did it before any of those
questions existing and before there was such a thing as Net Promoter Score.
We'll go way back. There's a woman who used to be CIO of ORBITEL which is a
Telco in Columbia. Her name is Olga Botero, who you might have heard of.
Anyway, back in 2003 Olga had this idea. She said let's look at all the
residential customers and find out from the profiles we do have with them -
which is mostly traditional such as job, etc. - who are CTO's, and when we
target the CTO's let's make sure we treat them all as high-value customers.
The idea being even if they're spending 5 centavos on residential service
they're going to be so happy with what they're getting that when they go to
their business they're going to be inclined to pick ORBITEL as the
customer. She's understanding this thing from the stand point of referral
in a slightly different way than a social customer is, but nonetheless,
from the stand point of influence and referral but she understands it in an
extraordinary way, uniquely because if you follow traditional CLV, you're
not going to treat them very well and if you follow the ultimate question
it's clearly way too limited for answering that one because they're not
necessarily advocates.

Barney Beal: So you're saying for customer referral that you ask how
likely are you or did you?

Paul Greenberg: "Did you" is the key. "Would you" is question one. "Did
you" is question two. That is the key question.

Barney Beal: Then it's up to the company to measure did that customer
attract new ones?

Paul Greenberg: Exactly.

Barney Beal: And they need to determine whether they're profitable.

Paul Greenberg: Right. Keep in mind right now that's a conceptual metric.
He applies it at Georgia State. He's a tremendous guy, and actually it
would be a great idea to contact him for an article, Dr. V. Kumar. He
runs the Georgia State Customer Experience Center or something. It's
not called that, but it's something like that. The guy's been around, I
don't know, 20 years. Do you remember a study was done in I guess
it was about 2000 or 2001? It was looking on the correlation of loyalty
to profitability.

Interviewer: It sounds familiar.

Paul Greenberg: It was a Harvard Business Review thing, and it was
done where they came up with mediocre to fair was the correlation.
Well, you know the irony, he's the guy who did the study. Actually,
I'll finish with a funny story here related to that. I was keynoting a
conference on loyalty that was done by Linkage. The speaker after
me was him, and while he was speaking he referenced this study
by this guy, and I forget the name but it was like Branbridge and
Kumar in 2000 on the correlation of loyalty to profitability and
profitability to loyalty. I thought to myself, "Oh, I use that study
all the time.

It's great that this guy's using that, too." After his speech was over,
which was great, I went over to him. I said, "Hi. I'm Paul Greenwood." He
goes, "Oh, I know you. I'm a big fan of yours." I said, 'I'm a huge fan of
yours, too.' Then all of a sudden I'm talking to him and I'm sort of
animated and gesturing a little bit, and all of a sudden I realized that he
was the guy who was in the study. It wasn't two different people. I went,
'You're the guy!' And I stuck my finger and I went this close to his eye. I
almost knocked his eye out. He jumped back like that because he was so
shocked.

This is the guy. I'm totally an advocate of this guy. He's not competing
with NPS. He doesn't mention it ever in his book. He's actually just
looking for ways to correlate things with profitability. He knows that
things have changed. He never calls it a social customer at all. He just
talks about referrals and so on, which have always existed it's just that
now it's more endemic and the influence level is much greater, too. I think
he's the next generation. I'm not saying he's the final, be all and end
all, but I think he's the next generation of measure for us and it's the
beginning of that. NPS now has served its purpose. I think now it's
thoroughly inadequate. I admire Fred Reichheld for even being the first to
do it. He started the ball rolling, but now the ball's much bigger.

Barney Beal: Great. Thank you. You've been very helpful.

Paul Greenberg: Any time.

Please note the full transcript is for reference only and may include limited inaccuracies. To suggest a transcript correction, contact editor@searchcrm.com.    

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