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Customer promotion

Customer promotion

Competitive prices, well-trained employees and a convenient website add up to a big payoff.

  • min read


Customer promotion

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Dan Murphy’s customers are hooked. They give advocacy scores for the company that are far higher than the average liquor retailer, according to Bain & Company’s latest analysis. Competitive prices, well-trained employees, and a convenient website add up to a big payoff: Dan Murphy’s loyal “promoters” buy a large portion of their liquor there and frequently refer family and friends.

There’s a good reason that Australian companies such as Dan Murphy’s care about loyalty – namely the link to sustained growth. Bain’s research consistently shows that public companies with at least 5.5% annual sales and profit growth over a 10-year period, and whose earnings exceed their cost of capital, have twice the level of customer advocacy as companies with average or inferior performance.

Loyal and vocal promoters are worth more to the business. “Detractor” customers, by contrast, can wreak havoc by defecting to rivals, driving up costs to serve, crimping sales and tarnishing the brand’s reputation. The challenge for any company is to understand the root causes of advocacy and detraction, and then to invest selectively in loyalty-building initiatives that generate a high return and lead to profitable revenue growth.

Accomplishing these objectives requires a common framework, language and set of metrics that is embraced at all levels of the organisation. Many firms in Australia have discovered that the Net Promoter discipline provides such a comprehensive system.

A Net Promoter company regularly surveys its customers, asking them the “ultimate question,” which is typically: “On a zero-to-10 scale, how likely is it that you would recommend this company to a friend or colleague?” Companies sort their customers into promoters, passives, and detractors. The Net Promoter score (NPS) is simply the percentage of promoters minus the percentage of detractors. Companies then analyze how each category of customer exhibits different behaviour in referral, retention, share of spending, service interactions, and other factors. The corresponding effects on profitability then can be quantified with some precision.

New analysis of companies in 19 industries in Australia by Bain, based on a survey of more than 9,000 consumers conducted by DBM Consultants, shows that the average NPS is negative in 16 out of 19 sectors, and ranges from - 44 for gas utilities to 24 for online retail. But each industry also has a clear loyalty leader with a much higher proportion of its customer base who are promoters – in aggregate, 20 percentage points higher than the industry average. Loyalty leaders in the highest-performing industries include eBay in online retail (an NPS of 28), Emirates and Singapore Airlines in international airlines (Emirates at 39 is the highest NPS of any brand studied) and APIA in motor insurance (an NPS of 37).

Across industries, a promoter is worth, on average, about two-and-one-half times a detractor in lifetime value. That’s because promoters give more word-of-mouth referrals for a brand, spend more and stay as customers longer.

Referrals are important in most sectors. But the relative importance of other factors depends on the type of business. Our analysis shows:

  • Retention of customers is most important where customers have a regular purchase decision triggered by, say, renewal of an annual contract. In mobile telecom, where Virgin Mobile and Telstra lead, we estimate that a promoter is worth about two times more in lifetime value than a detractor, and greater retention accounts for about one-third of the difference.
  • Retention also plays a big role in highly competitive sectors, such as electric utilities, led by Red Energy, where companies are constantly contacting consumers with discounts and offers to persuade them to switch.
  • Share of spending plays the largest role in industries where customers shop frequently among several providers, such as grocery and other retailing and credit cards.
  • Holding multiple products is critical in industries, such as mortgages and fixed-line telecom, where customers have regular, though less frequent, opportunities to buy new products or services from an existing provider.

Australian companies can put this knowledge to good use in improving their economics. They need to first quantify the value of customer loyalty, which doesn’t typically show up on conventional accounting systems. That step is important to build a strong business case that will convince executives who might be initially sceptical of the value of investing in advocacy. Then a company can get more detailed data showing which factors matter most to advocacy in its particular business, which interactions with customers are causing problems, and what remedies will be most cost-effective.

Such investments would not always rise to the top under traditional evaluation metrics like direct revenue impact. But a new IT system or improved call service levels might merit the resources if it raises loyalty among a high-priority customer group. Once investments have been made and initiatives launched, a company can track their effect on NPS as well as on financial metrics, which helps to build the business case for next year’s potential investments.

As companies map out how they can achieve sustained, profitable growth, securing loyal customers is an essential part of the equation. The Net Promoter discipline gives management a clear view of their loyalty position and a rigorous means of assessing which investments will improve the customer experience and produce the greatest financial benefits.

Katrina Bradley and Richard Hatherall are Sydney-based partners in Bain & Company’s Customer Strategy & Marketing practice.


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