Customer loyalty is the leading indicator of business growth. In fact, a main reason why companies implement voice of the customer (VoC) initiatives is to improve customer loyalty. Based on a 2010 study by Gleanster, asking 276 companies about their customer feedback management initiative, a majority of the loyalty leading companies said they implemented their program to increase customer loyalty, increase customer retention and increase customer satisfaction.
There are many different ways customers can engage in loyalty behaviors toward your company or brand. They can remain a customer for a long time. They can recommend you to their colleagues and friends. They can even show their loyalty by purchasing additional products/services from you. These loyalty behaviors, in turn, drive different types of business growth: overall customer growth, new customer growth, and average revenue per customer.
Customer relationship surveys, the foundation of many VoC programs, are used to measure customer loyalty, along with other important customer variables (e.g., satisfaction with their experience). Including the right loyalty questions in your customer survey is essential to an effective VoC program. Companies use these surveys to understand and diagnose problem areas that, when fixed, will increase customer loyalty.
Not all Loyalty Questions are Created Equal
I have developed a set of customer loyalty questions that measure different types of customer loyalty. These loyalty questions have been shown to be predictive of different types of business growth and can be grouped into three sets of loyalty behaviors: retention, advocacy and purchasing. Each set of loyalty behaviors contains specific loyalty questions. Research shows that questions that fall into the same set are essentially interchangeable because they measure the same thing. Some of these customer loyalty questions appear below.
Retention Loyalty: the extent to which customers remain customers and/or do not use a competitor
- How likely are you to switch to another provider? (0 – Not at all likely to 10 – Extremely likely)
- How likely are you to renew your service contract? (0 – Not at all likely to 10 – Extremely likely)
Advocacy Loyalty: the extent to which customers advocate your product and/or brand
- How likely are you to recommend us to your friends/colleagues? (0 – Not at all likely to 10 – Extremely likely)
- Overall, how satisfied are you with our performance? (0 – Extremely dissatisfied to 10 – Extremely satisfied)
Purchasing Loyalty: the extent to which customers increase their purchasing behavior
- How likely are you to purchase different solutions from us in the future? (0 – Not at all likely to 10 – Extremely likely)
- How likely are you to expand the use of our products throughout company? (0 – Not at all likely to 10 – Extremely likely)
Using Different Types of Loyalty Questions
Selecting the right customer loyalty questions for your survey requires careful thought about your customers and your business. Think about how your customers are able to show their loyalty toward your company and include loyalty questions that reflect those loyalty behaviors you want to manage and change. Additionally, consider your business growth strategy and current business environment. Think about current business challenges and select loyalty questions that will help you address those challenges. For example, if you have a high churn rate, you might consider using a retention loyalty question to more effectively identify solutions to increase customer retention. Additionally, if you are interested in increasing ARPU (average revenue per customer), you might consider including a purchasing loyalty question.
Using a comprehensive set of loyalty questions will help you target solutions to optimize different types of customer loyalty of existing customers and, consequently, improve business growth. Including a “likelihood to quit” question and a “likelihood to buy different” question can help you understand why customer are leaving and identify ways to increase customers’ purchasing behavior, respectively.
Customers can engage in a variety of loyalty behaviors. Companies need to think about customer loyalty more broadly and include different types of loyalty questions that meet their specific business needs and comprehensively capture important loyalty behaviors.
Bob –
Your article is interesting, and I can certainly concur about building the right questions into a customer survey; but I vigorously disagree about satisfaction measurement being part of customer advocacy. Satisfaction, because it depends principally on attitudes and recent transactions, isn’t dependable because it doesn’t drive advocacy behavior or correlate very well with long-term relationships and key monetary measures like share of spend or likelihood to use/purchase new products and services.
Advocacy, as we and many major consulting organizations define it, occurs when customers select a single supplier from among all those they might consider, giving that supplier the highest spend share and future purchase intent possible, having a strong, favorable impression of the supplier, and telling others about how positive the relationship is and how much value and benefit they derive from it. Advocacy incorporates opinions formed from customers’ transactional and other contact experiences, but it is built on a foundation of strategic, positive purchase and communication behavior. Advocacy results when the customer thinks highly of a supplier, and not only purchases consistently from that supplier over others, but also forms an emotional bond and enhanced levels of involvement, and actively interacts with peers about the personal value and benefit received from the relationship
Please see my CustomerThink articles on this subject over the past year, especially(http://www.customerthink.com/article/marketing_case_customer_advocacy_measurement) or my book, The Customer Advocate and The Customer Saboteur (http://asq.org/quality-press/display-item/index.html?item=H1410).
Regards.
Michael Lowenstein, Ph.D., CMC
Executive Vice President
Market Probe (www.marketprobe.com)
Mike,
Thanks for your reply. I also read your link to your post on customer advocacy.
Satisfaction, recommend and buy again all predict business growth
There is solid, published, scientific evidence that shows that customers’ ratings of satisfaction are predictive of business metrics (as are recommend and continue to buy questions). Here are some studies:
Why do these three loyalty questions show the same relationship to business growth? Because they are measuring the same underlying construct. Applying psychometrics (the field of psychological measurement) to this problem, I conducted several studies on the measurement and meaning of customer loyalty, using these three popular loyalty questions (satisfaction, recommend, continue buying). Please see this article for details of the studies: http://businessoverbroadway.com/wp-content/uploads/2011/01/QP_June_2008_True_Test_Of_Loyalty.pdf). I found that those three questions are measuring the same underlying construct:
This pattern of results means that the three loyalty questions measure one underlying construct (which I labeled Advocacy Loyalty – I could have called this factor something else but the nomenclature is not important). Psychometrics is more of a customer-centric way to understand what the questions are measuring. The customers’ responses drive the meaning of the ratings, not us. We may have a theory or a framework about what we think we are measuring with our questions, but it is the customers’ responses to those questions that ultimately drive our conclusions about the meaning of the ratings.
Is Advocacy a Variable or Framework?
To be honest, after reading your response and blog post, I am unclear about what you mean by advocacy. Your definition of advocacy never actually defines what advocacy is. Above, you talk about when advocacy “occurs” or what things impact advocacy (“incorporates opinions,” “built on a foundation”) but I’m left wondering exactly what you mean by or how you measure “advocacy”.
Your statements about advocacy are tautological. You use the same behaviors/attitudes to define customer who are advocate and who are not and then you use those exact same behaviors/attitudes to show the difference between customers who are advocates and those who are not. You can’t have both and have a solid theory.
Specifically, you use advocacy as an outcome of the behaviors. You state:
In the blog link you provided, you use advocacy as a predictor of the behaviors. Again, you state:
So, is advocacy a predictor or an outcome of the desired customer behaviors/attitudes? How do you measure advocacy?
I rarely (never?) rely on consultants’ endorsements/definitions to drive my acceptance of whatever it is they are trying to push. They need to convince me that what they are espousing makes sense and is supported with sound evidence.
Skeptically yours,
Bob
Bob –
In the interest of avoiding a protracted dialogue about this (at least from my side), I’ll just address your very first point, namely that satisfaction, recommend and buy again all predict business growth. More succinctly, I’ll respond with a perspective on recommendation, but you and others can get a more complete explanation in my recent CustomerThink article: http://www.customerthink.com/article/customer_advocacy_behavior_personal_brand_connection
I’m, of course, familiar with all of the studies you’ve cited. In the Keiningham et al research, their two-year study with more than 8,000 customers of companies in retail banking, mass merchant retail and Internet services yielded the following result for NPS: “NPS’s ability to explain customer behavior ranged from 0% to 20% (meaning that 80% or more of the differences in customer loyalty behavior was caused by something other than what we were measuring).” This echoes our own research study results. Many things can correlate with one another, and we are focused on what, reliably and industry-to-industry, causes the customer behavior. With that criterion, namely the relationship of a measure to actual business outcomes, NPS is very weak tea indeed.
Incidentally, for future reference my name is Michael, not Mike.
Regards.
Michael Lowenstein, Ph.D., CMC
Executive Vice President
Market Probe (www.marketprobe.com)
Interesting dialog!
I’ve been driving innovative leadership in software companies for over 25 years.
When I was a Director at Intuit, we had three stakeholders; team, customers and shareholders. We used NPS as the single question that we used to evaluate our customer satisfaction as it led to recommending behaviour / advocacy. I know lots of my peers in other large enterprises that did the same. In other words, the words “loyalty” and “satisfaction” are considered interchangeable.
So, yes, there is a direct link between satisfaction and recommending behaviour. If a customer is not satisfied, guaranteed they won’t recommend. If they are ecstatic, then they are highly likely to recommend … yes, I know recommending is behavioural (and also related to how many tools you give them, like social media “likes”, to help them with that behaviour), but I have never seen a study where they aren’t highly correlated. That’s my field research perspective … Dr. Hayes has put the statistical science behind it.
I met Dr. Hayes a few years ago and have worked with him several times on varied projects in both wide market studies as well as loyalty studies with specific companies, and I’m very impressed with his approach … his additional two dimensions (Not only Advocacy, but Purchasing and Retention) add an exponential wealth of information beyond NPS as they correlate directly to the three ways a company grows; through new customers, through existing customers buying more, and through existing customers buying again.
“NPS is very weak tea indeed.”
I agree. Dr. Hayes agrees as well. What he serves up is a nice rich black tea with a hint of currents.
For the record, people call me both Stephen and Steve, although honestly, my preference is Stephen.
Thanks,
Stephen King
@stephdokin
http://www.stephdokin.com
It seems to me that, while satisfaction is not the same as loyalty, it’s a necessary precursor.
And if advocacy has anything to do with loyalty, then satisfaction has to be part of advocacy, doesn’t it?
When the NPS debates were raging a few years ago, I wrote an article on loyalty metrics. Here’s a quote from that article:
So maybe we’re making things too complicated?
Personally, I think large enterprises should invest the time to develop their own loyalty metrics, in conjunction with using NPS or others if they want to compare their performance with others in the industry. If NPS or Advocacy or whatever is validated, go with it.
But I also feel that there is too much attention given to finding the “perfect” metric, and not enough to
1. Getting more complete feedback across a wider variety of “listening posts” — some like social media that don’t lend themselves to calculating NPS or other loyalty metic.
2. Systematically *acting* on that feedback to make improvements.
I think that the enterprise that listens better and acts more decisively will outperform those that don’t, even if “weak tea” feedback metrics are used.
Even the NPS community has moved on. Based on what I experienced at the Netpromoter conference early this year, they’re not sitting around worshiping NPS as the “one number.” Instead, most of the conference was about creating complete VoC programs that will create change, to improve the customer experience. You can read more here.
For more on VoC, see my article on the six dimensions of customer feedback.
We don’t argue, and have never argued, that all of the historic array of metrics our clients use in their customer surveys have at least some decision-making guidance value. Further, we never suggest removing any of these legacy metrics from studies, espeically given that management has become comfortable with seeing and using them, and even frequently building them into incentive KPI goals. For our clients, we often provide insightful analysis, showing the relationship of customer advocacy driver and behavior results to satisfaction, recommendation, etc. measures. Most importantly, we are not interested in positioning advocacy against satisfaction, recommendation, or other antecedent measures as an either-or choice, but, rather as an augmentation and framework for building stronger customer loyalty behavior based on much global research.
Per Bob’s point, customer-centricity and the ability to build, and sustain, relationships with customers are the paramount goals. The measures used to help achieve and hold that objective need to be both relevant and accountable from a business results perspective. This boils down to leveraging insights on how current customers act in the marketplace, how to stabilize at-risk customers, and how to attract valuable new customers. With these criteria, customer advocacy has, simply, proven to be more stable and actionable than other techniques, as both a management concept and research framework.
Michael Lowenstein, Ph.D., CMC
Executive Vice President
Market Probe (www.marketprobe.com)