Net Promoter Score (NPS): Real Deal or Have Car Dealers Been Sold a Lemon?

In the car sales arena Key Performance Indicators (KPI’s) are King: every sales statistic possible is monitored, from customer visits, test drives, sales, deliveries and finance penetration etc and now customer satisfaction. These KPI’s are benchmarked to provide an industry/dealer standard of performance.

It is believed that each KPI has a correlative effect on each other, in that the more people you see, the more you test drive, the more you sell: it is as they sales people say ‘a numbers game.’

Now we believe that we can reverse the algorithm and make KPI’s do the work. By delivering exemplary customer service, a customer becomes a net promoter, advertisement and an advocate for the company.

All we have to do is sit back and wait for the satisfied customers or ‘Net Promoters’ to drive the new customers, soon to satisfied and be transformed into promoters, into our businesses and reap what has been sowed.

A perfect self sustaining and scalable business model or have the sales people been sold a lemon?

What is Net Promoter Score?

In recent years there has been an upsurge in the use of Customer Satisfaction Surveys and the reliance upon the’ Net Promoter Score (NPS)’ – none more so than in automotive manufacturers and retailers.

NPS is a question within a Customer Satisfaction Survey, where the customer is asked to rate on a numerical scale of 0-10 how likely they would be to recommend the retailer to someone else.

The resultant score is applied to the following three categories:

· Score of 9-10 Promoters – those who will actively recommend the retailer

· Score of 7-8 Passive – satisfied customers but ambivalent about recommending

· Score of 0-6 Detractors – unhappy customers actively dissuading others

The Theory

At face value, NPS serves as a more pertinent barometer of customer service levels in that the customer is not just completely satisfied but so elated that they will sing the praises of the retailer at every opportunity.

However it has become relied upon as a Key Economic Indicator of the future financial health of the organisation and an aid to the prediction of future sales.

In essence NPS is a ‘rebranding’ of a theory long since expounded by economists in which certain Key data such as employment statistics have a ‘procyclic’ correlation with the wider financial health of a country. Simply put, if a country is creating jobs then there will be an increase in personal spending which will be reflected in retail sales.

Three problems:

1. The issue with NPS, at least within the automotive retail sector is the tendency to manipulate the statistics.

Employees have been coached in how to ask, persuade or even incentivise customers to ‘tick’ the 9 or 10 box in an effort to mask any real or underlying ‘service’ issues and keep the employee and retailer out of the critical view of the manufacturer.

2. Even if the retailer does give outstanding service and the delighted customer does genuinely and voluntarily ‘tick’ 10, is there really a correlation with increased future sales?

It is fair to conclude that a 10 on NPS cannot in good conscience be compared in terms of its value as an indicator to the creation of an additional job in the market place. There is simply no predictive evidence to demonstrate the relationship, as opposed to the straight forward algorithm of a person earns money, they spend money therefore retail sales increase.

3. Lastly, why is there no correlative evidence or any evidence for that matter? Instead we as the prospective customer ‘how they heard about us?’ and then provide them with a drop down list of options.

Surely we would want to apply a more technical approach as utilised in Google + for example or other social networks, where through the power of technology the relationship between customers is apparent.

Solution

Get back to basics.

Let’s forget for a moment the tangible benefit of NPS or not as the case maybe and consider the original premise behind automotive sales.

It used to be said that a retailer could earn more profit from a customer over the three years after buying their car than was realised from the original sale.

Therefore, the focus should be not on who the customer can recommend the retailer to, but how frequently they themselves return to the retailer.

The good news is we have the capability and relatively simple technology to measure real customer loyalty and harness the data as a real Key Economic Indicator.

Nowhere to hide

Perhaps obviously the introduction of ‘loyalty cards’ would electronically track customer behaviour and reward them for it, but for reasons unknown it has not yet made it into dealer groups. Nevertheless, there is a more rudimentary solution.

1. We downloaded the vehicle sales data for a given year and filtered the information to include the purchase date, customer name, vehicle registration number and net profit.

2. We cross matched that data with that of the three years post purchase to determine if and when the customers returned to buy again.

3. We then cross matched the data with the service and parts department to indicate how frequently the customers patronised the businesses.

Results

If the retailer is brave enough they could contact those customers that didn’t ever return after their first visit and ask them why, to gain real insight to customer service.

However, the results from running this experiment with several retailers, who will of course remain nameless, has been nothing short of shocking.

There is no doubting their determination and ability to gain new customers and sell plenty of cars, hours, parts and finance but they undoubtedly make it hard work for themselves.

But in that regard they are a one trick sales pony and would be best advised to focus a proportion of their efforts in learning and training about customer behaviour and retention.

The Mystery of KPI’s

Source by Philip Harmer