Shareholder value vs. Customer value

There was a great column published this week by Joe Nocera entitled “Down with Shareholder Value“. In that column he challenged the long-held notion that the end-all and be-all of a corporation is the maximizing of shareholder value.  He point out that this “truth” has really only been with us for around the last thirty years. He discusses how this this singular focus has resulted in a fair bit of unintended, and not highly desirable, consequences.  He calls forth new theories coming out of business schools that look at a more holistic and long-term context for defining long-term strategic advantage and corporate success.

But he notes that one of the reasons why shareholder value is used as a measurement stick is that it can be distilled down to a simple set of metrics.

Metrics are important. No, essential. Without them, we cannot instill the feedback loop that improves performance.  But if we move away from standard profitability measurements for guiding improved performance, what then do we have?

I would argue that it is not only shareholder value but also customer value that is critical to define and measure against to guide long-term growth. Tools such as the Net Promoter Score (NPS) can become powerful tools – if strategically used — to help guide the tiller of the modern corporation. But the problem is that few use NPS and other measurements of customer value strategically – though that is the topic for a future post.

NPS for B2B Continued – Making it Work

Last week I posed the question – can Business-to-Business companies use NPS to understand who their advocates are, and how to build customer advocacy?

Yes, you can – but not just by throwing the NPS question at your main contact in the organization. B2B sales are too complex for that. Suppose you’re selling medical equipment. The Chief Resident might recommend you. The medical technician using the equipment has reservations. The person in medical records is totally on board. The budget director not so much.

That could be four (or more) conflicting NPS numbers to deal with. What’s the answer?

Here’s what works – you need to embed the NPS in a thorough exploration of the whole multifaceted customer experience. That means surveying all the people you touch, and asking them all the NPS question. You also ask them why they would or would not recommend you, and get a good picture of their experience.

Then, look at your data and correlate each department’s NPS with the aspects of their particular experience that drive the advocacy or detraction. Maybe you’re good at understanding the overall business, so management recommends you, but you’re not quick enough solving the engineer’s problems. Once you know who all your advocates and detractors in an organization are, you can use NPS just the way BtoC companies do – start changing the behavior of your company to bring about better experiences for all the people you touch.

NPS – Does it work for B2B?

If you suggested I rename this blog something like NPS News, I couldn’t blame you; I’ve been thinking a lot about NPS lately. Mostly, it’s been about the straightforward advantages of this useful market indicator. But NPS has a fundamental problem too – NPS was designed for a B to C market.

After you’ve rented a car, the agency asks you if you’d recommend their car rental company to a friend. A simple sale, simple process. But nothing about B to B is simple. Both the sales process and the customer experience is complex. Can NPS work in that arena?

If you’re helping a customer rent a car or book a flight, you need to know your product, be helpful, be seen to be getting them a good deal, and solve problems quickly.

In B2B, your relationship touches different types of people. Say you’re selling sophisticated electronic equipment to an organization. You’ll be contacting both the engineer who’s using it and the senior management. Each will have different questions, and different reasons for contacting customer support. The engineer has functionality questions, and needs problems fixed fast. Senior management wants to know if the solution fits their strategy, so they need to be working with people who understand their business. They’re not buying equipment – they’re buying a solution.

So the challenge : how to use NPS in this complex B2B environment? The single NPS question (“would you recommend us …”), is too superficial. Your result would be meaningless, giving you no insight to act on.

Can NPS work in a B2B environment? Sure – but you need to approach it differently. This post is getting a bit long, so I’ll explain how next week.

Insight and transformation

Years ago I embarked on a journey. This was a journey to learn how to better use the web to listen.  Not to collect data or fragments of chatter, but to very intentionally engage customers in intelligent conversational experiences that provide insight. Insight that drives better business decisions.

Listening and insight. That’s what started me on my way. Over these many years my company has developed some of the most powerful web interviewing tools for strategic listening.

But something was missing in this mission. Because insight, while noble, was still a means to a larger end.  What was it? We use that insight to help our clients align better to the needs and aspiration of their customers. We use that insight to help companies better co-innovate with the customers. And we use that insight to help companies better convert that engagement into sales-ready leads.

But, and the end of the day, why?  Simply to drive the topline?

Perhaps. But I began to notice that as we worked with our clients something more powerful began to happen. I saw our clients being empowered by this process, increasing their confidence and indeed, being transformed as they began to realize their power to become transformative. It’s been amazing to watch.

I have come to appreciate that this power of transformation is really the reason we listen. Listening in a way that provides us insight that allows us to act with confidence transforms who we are and what we can do. This process is life giving. It is a promise worth the journey.

NPS – The Unsung Hero

Not long ago, in the course of a talk I was giving to a regional marketing association, I asked how many people were using Net Promoter Score (NPS) in marketing efforts with their clients.

Answer: none.

So I asked how many knew what NPS was.

Answer: one.

This surprised me, considering how long the Net Promoter Score has been around, and how effective it’s been demonstrated to be. In fact, I thought that it would be a staple of marketing jargon. Customers might not know about NPS, but marketing people?

I’ve written about NPS before. Here’s a very quick review from that post:

Just a reminder to non-marketing geeks: you get the Net Promoter Score by taking the percentage of people who are highly likely to recommend a company (Promoters), and subtracting those who are unlikely to (Detractors).

Understanding those promoters is the key to building your brand.

It’s up to us as marketing professionals to promote the use of NPS – the correct use – as actively as we can. I’ll talk more about how to do that in my next post.

NPS for Entire Industries

In my previous post, I wrote about how the Portland software community was engaged through successive surveys, each smarter and more focused than the last. Okay, now they’re on board. But can you really measure the likelihood that an industry will succeed? Sure.

We use NPS for customer satisfaction analysis when we work for companies. It occurred to me – why not use it for entire industries? If people are passionate about their cluster, whether it’s the South Bend Tourism board or the California semiconductor industry, they’ll thrive, and NPS can measure that passion.

For our survey of the Portland software cluster, we asked if people would recommend Portland to an industry colleague as a place to do business. When we started, we had as many detractors as promoters – an NPS of 0%. That meant that if you talked to someone about the city, there was a good chance they would trash it. No wonder the software sector wasn’t going anywhere.

Six months later, the NPS is 23%. Our goal is to bring that to 40% over next 2 years, and we’ll make it. When we reach the goal, people will be fighting to put out their shingle here. Portland already has the talented people. Once they’re all brand evangelists for the city, it’s a done deal.

More Proof: Promoters Make the Difference

From the Church of the Customer Blog comes a comment on recent research about the NPS and revenues.

Just a reminder to non-marketing geeks: you get the Net Promoter Score by taking the percentage of people who are highly likely to recommend a company (Promoters), and subtracting those who are unlikely to (Detractors). Examples of companies with high NPS are Jet Blue, Verizon, and (surprise!) Apple. All did well in a market that hasn’t been easy on most companies and sectors. The Church asks:

Could it be that the customers of these NPS stars are recommending them at higher rates resulting in increased revenues? Seems reasonable enough.

It’s more than reasonable – it’s a reinforcement of what we’ve known for a long time: the long-term strategic impact of brand evangelism (brand evangelists are another term for promoters). When you understand the impact of your promoters, you start to move away from short-term quarter-to-quarter performance thinking to the long view: building an army of brand evangelists who do your marketing work for you.

Misusing Recommendations

Our clients often expect us to include a recommendation question in a survey, to get an NPS score. However, Valeria Maltoni over at Conversation Agent says that the NPS (Net Promoter Score) doesn’t tell you enough. She’s right.

Some history: looking for a tool that would best predict corporate success, Fred Reichheld examined an assortment of survey questions, and found that a positive answer to the question “Would you recommend our company to a friend or colleague?” had the highest correlation with long term revenue growth.

To help improve corporate performance, Reichheld recommended that the question be asked soon after a transaction, to quickly assess the experience, and keep employees aware of their crucial role as the company’s public face.

It was also a good way to tell which agents or group of agents were leaving the best impression.

That was it. End of story.

Except that companies immediately started misusing it, asking it annually (or more often) of all customers regardless of whether or not they’d done a transaction. At i-OP one of our own vendors sent us a survey with the NPS question twice a year, like clockwork. No reasons why, nothing qualitative.

Problem is, B2B relationships are complex – a lot of factors affect our experience, and you need to understand which of those have the highest correlation with the customer’s overall assessment. To do this analysis you need to use some form of regression-like analysis (we actually use something called Bayesian Inference) to find the drivers behind the experience.

If you just ask the question, and don’t delve into the reasons, you’re diminishing the relationship, not building it. And if you don’t understand what the drivers are behind that experience, you don’t know how to focus your efforts to improve it.

We dropped that vendor. It’s not enough to ask how you’re doing – you need to ask why, and listen deeply to the answers.