I also want to talk about one particular type of survey that has gained a lot of recognition, that's the Net Promoter Score. What is that? It actually just boils down to one question. How likely is it that you would recommend a particular brand, your company, to a friend or colleague? Just one question. It's done on a 0 to 10 scale. Promoters are people who score a 9 or a 10 on this scale. Passives are people who score a 7 or a 8. Detractors are people who score 0 to 6. And what's the Net Promoter Score of your company? That's the percentage of promoters less the percentage of detractors. So what does this allow you to do? This basically allows you to track the health of your brand. Do your customers overall like you? Or are there growing percentage of people who might become detractors? Now let's talk a little bit about a concrete example of the Net Promoter Score, which is something that is extremely popular across many, many different companies. For example Zappos constantly uses Net Promoter Scores to see how their customer services. There are many other examples of companies that use Net Promoter Score to look at how internal people are doing when they talk to customers. When you think about Net Promoter Score, the bigger issue of customer satisfaction comes to mind. And the question is how to measure customer satisfaction. On the left-hand side of this chart, you can see there readily available measures, such as operational measures, complaints analysis, ratings and reviews, and so on. On the other extreme right-hand side, you can have focused efforts such as mystery shopping, satisfaction surveys, and so on. It can also have somewhere in the middle, employee reports. So, big question is, how do you measure customer satisfaction? And it's in this context that Net Promoter Score came around. The idea of Net Promoter Score is the following, it just asks a single question, which is basically why it's so important and so useful. How likely are you to recommend a service to a colleague or a friend? So it's on a zero to ten scale. As you see here, numbers from 0 to 6 are called detractors. These are people who are not as interested in recommending the service. The numbers on the top two sides, which are the 9 and 10, are called people who are promoters. These are people who would clearly promote the service to a colleague and a friend. And the Net Promoter Score for any particular company, is the percentage of promoters, which are the people who circled the 9 or the 10, less the percentage of detractors, which are people who circled from 0 to 6. So if you look at the Net Promoter Score, it's a great way of looking at how a company is doing. Obviously, you'd like positive Net Promoter Scores, because that basically says that the number of promoters are much more than the number of detractors. If you think about the Net Promoter Score, they way it came about is from an article from Frank Reichheld, who was the one who talked about the Net Promoter Score. This was published in HBR. And what these graphs show is that Net Promoter Score really well captures what's going on in overall customer satisfaction. Now if you think about it, one way of thinking about customer satisfaction, which is the criticism of Net Promoter Score, is that there is an American Satisfaction Consumer Index which is out there, which is readily measurable, it's been done for many, many years. So a big criticism of Net Promoter Score, on the flip side, is that it's very similar to the ASCI index. In fact, for many industries, what's been also seen, is that the ASCI index has a higher R square with industry growth, much larger than the Net Promoter Score. So there is no clear evidence that the Net Promoter Score is superior to other metrics. What am I doing here? What I'm showing you again the pros and the cons. On the pros side, the Net Promoter Score is very popular. Why? It's a single question. It's so easy to implement because that's what you are asking your customers. On the cons side, you also have to think about what are you getting at? If it's about customer satisfaction, there are other measures that might do a better job than the Net Promoter Score. So keep this in mind as you think about implementing the Net Promoter Score in your own company. Here's an example, here in the two panels what you see here, is the R square, related to the net growth in the industry, compared to the ASCI index and the Net Promoter Score index. What you see here is for one set of companies, the R square from the ASCI index is actually higher than the R square from the Net Promoter Score. So again, keep this in mind as you start implementing a Net Promoter Score if you're thinking about it in your own company. Now, if you think about it, if you think from a predictability point of view, is Net Promoter Score related profitability? One way of thinking about it, indeed yes. Net Promoter Score can be related to customer satisfaction, which in fact has been shown many times in past work that it is correlated with profitability. Overall, literature generally suggests that higher customer satisfaction leads to positive outcome for a firm. What's the problem here? The link actually might be much weaker than what managers generally think. While the correlations are positive, customer satisfaction only explains a limited part of firm value and firm performance. Now the question might be, why is that the case? Intuitively you would think, more satisfied customers are, they'll be more happy to do business with that firm, and hence profitability should be higher. While that is indeed the case, it still explains only a limited part. Why is that? Well, one way to think about it is, what would be a way in which satisfaction and profitability might be linked together? If you look at this graph, satisfaction is on the horizontal axis, profitability is on the vertical axis. The way managers perceive the link between satisfaction and profitability is typically a straight line. So what they intuitively think is that if you keep increasing customer satisfaction, profitability will always keep rising. Well, what people have found, in fact it's much more complicated. Again, what I've plotted here is on the horizontal axis, we have satisfaction. On the vertical axis we have profitability. What do we see here? There is a positive relationship, but it's not a straight line. In fact, initially, when you think about increasing customer satisfaction, if you're at the lower ends, you do see an increase in profitability. But many companies might actually be on the flat part of the curve, which is, it's kind of business as usual. What you see here is that there is a big flat region where increasing satisfaction, does not actually increase profitability as much. When you cross that particular region, then you go to the zone of delight. Much fewer companies, these are people who have amazing customer service, these are the standouts. And for them in their particular category, you would see again that increasing satisfaction does increase profitability. Why do I bring this up? Because a large number of companies might be in the flat part. So, what you might see is, in your case, in your firm, increasing satisfaction might not make a measurable change in profitability. That doesn't mean that both of them are not linked, what it means is they're not linked linearly. They might be linked non-linearly. So again, you can also find that competition might impact what this relationship is. Why do I bring all of this up? The reason I bring all of this up, in some sense as a summary, is that whenever you think about doing any kind of survey, in this example, we are talking about the New Promoter Score, there are a couple of things you want to think about. The first one is, what is it capturing? Is it capturing customer satisfaction, what exactly is it capturing? How does it compare with other surveys that could capture the same thing? That is what we just talked about when we compared the Net Promoter Score with the ASCI index. Does it do better, does it do worse? How exactly what it's capturing is different from what other service could do. And finally the last part of it is about predictability. How does the metric that you're capturing, in this case, the Net Promoter Score, link with managerial outcomes that you're interested in? Just to summarize, what we saw in the last few slides was that you might think that there is a relationship between satisfaction and profitability, a positive relationship. Indeed that is the case, but it's not typically linear. There's a large part of the curve where increasing satisfaction might not make a measurable change in profitability. So again, as you start thinking about doing your own surveys, whether it be Net Promoter Score or other kinds of surveys, keep the following things in mind, what is it capturing, and how does it relate to things that you're interested in? Be it profitability, stock price, customer satisfaction, whatever metrics you are interested in capturing. Net Promoter Score has found a lot of leverage in terms of linking the score to stock prices, linking the score to future sales, and as a leading indicator of how good your brand is. So surveys are one clear way of reaching out to your customers in terms of collecting data from them. But there are other ways customers themselves might be willing to give you some data. So besides surveys where the company is reaching out to customers, many times customers can reach out to companies by giving self reports of what they're buying and when they're buying it. So InfoScout is one example of a company that actually attracts or incentivizes customers to do the following. Once they have made their purchases, they take the receipt, they have the mobile device, take a picture of the receipt and send it back. What does InfoScout do with it? They basically collect all of this information across many, many customers, to get insights into when people are buying certain products, where are they buying it, is it at pop stores, is it in convenience stores, is it in big box stores? So, that's one example in which customers are giving companies that information. Another example would be word of mouth dynamics. So, as a company, we would like to know what people are purchasing, but we'd also want to know what people are talking about. How is our brand being mentioned? So, there are many companies out there that collect this type of data. As an example, Keller Fay is a company that collects word of mouth dynamics. How do they do that? They have panel of customers which basically are given the following task, when you talk to somebody note it down. Who is it? Is it a friend? Is it a colleague? What did you talk about? Collecting this data in a diary format over time, across months, they are able to observe what people are talking about, who are they talking to, how is a brand being mentioned, and so on. So word of mouth dynamics is a powerful way of understanding how the brand sentiment might be changing over time, and [INAUDIBLE]. Now, again there are many, many different ways in which people can collect this data. Keller Fay is a company that does this through a panel data, through a diary format. And there are other unobtrusive ways of collecting this data as well, which we'll talk about next. So at this point, we talked about active ways of data collection. Next we'll about unobtrusive passive ways of data collection.
