Voice of the Customer

Net Promoter Score Drives Sustained Revenue Growth

More airlines are using Net Promoter Score (NPS) to measure their customers' satisfaction levels and identify where to make improvements. Companies with the highest NPS average about two-and-a-half times the revenue growth than that of the competition.

Commercial and marketing departments constantly talk about the importance of customer service, customer experience and customer journey. But do they really affect an airline’s bottom line? Absolutely.

While research shows the No. 1 influence in a passenger’s choice of airline is price, retaining existing customers and attracting new ones through word of mouth boils down to service delivery and customer experience. And that, no doubt, impacts a carrier’s bottom line.

Prior to the global financial crisis, many companies outside of the airline industry began to assess their ability to create customer loyalty through the use of a new metric called Net Promoter Score (NPS), created and owned by Satmetrix Systems, Inc.; Bain & Company, Inc.; and Fred Reichheld (Bain & Company’s loyalty guru).

The popularity of NPS has been fueled by the discovery that the metric is predictive of revenue growth. In fact, according to Reichheld, companies holding the highest NPS within their respective industries average revenue growth that is approximately two-and-a-half times greater than that of the competition.

NPS measures a company’s customer-satisfaction level, identifies “detractors” who are diminishing its brand reputation and shows the percentage of customers working on behalf of the company to promote the business. NPS is easy to understand, quantify and benchmark. It represents a single score derived from a single question: On a scale of 0 to 10, with 0 representing “not at all likely” and 10 being “extremely likely,” how likely is it that you would recommend the company, in this case “the airline,” to a friend or colleague?

Respondents that give responses from 0 to 6 are classified as “detractors,” 7 to 8 are “passives” and 9 to 10 are “promoters.” Subtracting the total number of detractors from the total number of promoters provides the company’s NPS. The NPS range is -100 to 100; with the latter being a perfect score, meaning all respondents identified themselves as company promoters.

Despite widespread success of NPS, the airline industry has been slow to adopt the metric. No doubt, this is a byproduct of airlines’ focus on cost reductions at the expense of investments in customer loyalty in order to survive the recent global financial climate. However, at least one outside research company — Satmetrix — has tracked NPS for U.S. airlines during the past decade.

When NPSs are depicted with revenue growth, using a scatter plot, it becomes apparent that an airline’s effectiveness in maintaining customer loyalty is highly predictive of sustained success.

Determining Net Promoter Score
Determining Net Promoter Score

NPS measures customer loyalty through the determination of which passengers are advocates of the company, those who are relatively passive and those who are the likeliest to diminish brand reputation to prospective consumers through negative word of mouth. A company’s NPS is determined by subtracting the percentage of detractors from the percentage of promoters.

For more than 10 years, airlines that have successfully differentiated themselves with higher NPSs have enjoyed year-over-year revenue growth three to five times greater than the competition. The correlation coefficient between historical revenue growth and NPS is 0.89, with 1 being a perfect linear correlation. In other words, the statistical strength of the relationship is very high.

Clearly, higher customer loyalty translates to steady, increased passenger revenue, because the airline is retaining current customers while attracting new ones. In fact, a recent study conducted by the Temkin Group showed that 81 percent of promoters were likely to repurchase from their preferred airline compared with only 16 percent of detractors. Yet, the economics behind NPS go beyond retention rates and into both the characteristics of promoters and detractors and the secondary affect resulting from word of mouth.

The financial impact of word of mouth is significantly greater than most company executives realize. To begin with, word of mouth is a company’s best, cheapest and most-effective advertising channel. In fact, 80 percent of consumers trust word of mouth over any other source of product information or advertising, according to Forrester Research and the Nielsen Company.

Moreover, word of mouth is nine times more effective than traditional advertising in converting unfavorable or neutral dispositions into positive attitudes. In addition, avenues for spreading positive and negative word of mouth have never been more open and fluid than they are today with the advent of social media sites such as blogs, Facebook, Twitter and LinkedIn.

Among the three categories of customers, research shows that more than 80 percent of positive referrals come from promoters and more than 80 percent of negative word of mouth comes from detractors. Interestingly, the ability of either the promoter or the detractor to convert the audience varies between the two.

According to Satmetrix, promoters tend to talk to more people, but conversion rates are relatively low. In contrast, detractors typically talk to less people, but conversions rates are higher as this category tends to seek out willing listeners or those more likely to act upon the information given.

Previous consulting work by Bain & Company also found that the variable business cost of servicing detractors tends to be higher than promoters, because detractors are more likely to contact call centers and demand complaint resolution and less likely to utilize self-service tools such as airport kiosks. Thus, customer loss resulting from negative word of mouth, combined with increased service costs, naturally translates to a decrease in revenue and profits.

When promoters are successful in attracting a new customer, the new customer is more likely to become a promoter as well. Retention rates are higher for promoters. Therefore, they have a longer customer lifetime during which companies can generate more sales and spread out acquisition costs. In addition, promoters tend to complain less, are more forgiving of a company’s transgressions (64 percent will forgive according to the Temkin Group) and are typically less sensitive to pricing changes. In fact, on average, promoters spend more than average annual spend rates and detractors spend less.

When considering promoter and detractor characteristics and calculating total customer worth between the categories, it should come as no surprise that there is a significant gap between promoters’ value to a company and that of detractors. In terms of word of mouth, total customer worth equals:

  • Buyer economics + referral economics where:
    • Buyer economics = annual spend for a category
    • Referral economics = net customers gained or lost x average annual spend
    • Net customers gained or lost = number of persons talked to x conversion rate

This year, the consulting team for Sabre Airline Solutions® provided an international air carrier a complete analysis of its NPS and the specific economics related to the score. The analysis revealed that the difference in annual total customer worth was approximately 50 percent between passives and detractors/promoters. Not only did promoters have a higher average annual spend, but their total customer worth was nearly three times that of detractors when factoring in referral economics.

Consider two things:

  1. Given the relatively low margins from which airlines must squeeze profits, it is likely that every detractor created and sustained is costing the company a significant amount of money.
  2. In the example above, every detractor shifted to neutral status (passive) represented a 100 percent increase in total worth to the airline; moving a customer from detractor to promoter status increased his/her total worth by almost 300 percent.

Airlines around the world have taken notice and are becoming much more engaged in tracking their NPS while looking for ways to increase it.

“NPS is core to how we make decisions,” said Robin Hayes, JetBlue’s chief commercial officer.

So how does an airline use NPS to make decisions? An airline must first find ways to retain existing promoters and swing passives and detractors to a more positive position. Doing so requires an airline to know — from the customer’s perspective — what it is doing right and wrong, or where service-level gaps exist. Of course, passengers are the source of this information, and collecting that data can be difficult.

The most popular method of tracking customer experience is through continuous survey deployment. Several airlines have increased the number of surveys they send out. However, an airline needs to use caution to ensure it does not provoke its customer base.

Continually surveying customers tends to irritate them and actually risks creating detractors. For the company’s part, the process requires ongoing analytics and manpower to sustain a practice that is extremely objective depending on the respondent’s mood, the time of day, the most recent experience, etc.

To maintain untainted responses, surveys should never be created and deployed by the airline itself. Analysis of survey responses shows that when respondents are aware a particular airline is the source of a survey, they tend to respond favorably toward the airline and not necessarily with the truth.

The answer to this dilemma is to contract a third-party surveyor, but this requires ongoing costs, which are generally based on the number of deployments. Therefore, the higher the quality of data, the higher the cost of the survey to an airline.

Airlines may experience greater benefits using a holistic approach that begins with NPS analytics but also includes the voice of the customer. Airlines continually gather voice-of-the-customer data with customer relationship management (CRM) software, complaint tracking, frequent flyer programs, etc. In other words, data is collected every day in customer service areas but is often not mined for customer insights.

The consulting team at Sabre Airline Solutions® has developed a holistic approach that includes NPS tracking and uses customer data to create continuous feedback loops to drive Lean Six Sigma principles throughout the organization. The end result is actionable data that propels revenue growth.

Working with an airline, Sabre Airline Solutions will deploy NPS surveys and provide Net Promoter Scores, along with benchmark data from its competitors, using responses from the survey and an internal database created from previously deployed surveys.

Sabre Airline Solutions has the only consulting team actively tracking NPS for both domestic and international carriers. Moreover, the accuracy of the technology company’s NPS data is superior to any other reports currently available, with margin errors between +/- 1 to 5 points (95 percent confidence level)compared with other industry surveys that have only been able to attain around +/- 13 to 15 points.

However, the value of NPS surveys should extend beyond individual scores themselves by identifying specific ways to increase these scores, thereby capturing possibilities for resultant revenue gains. To do this, survey respondents are asked to rate how important and how satisfied they are with different attributes and features of the airline related to brand, customer effort, customer service and in-flight experience.

The data is analyzed and benchmarked against key competitors. Then the airline is given an overview of the results along with gap analysis that identifies the difference between how important the feature or attribute is to promoters and detractors and their actual satisfaction levels.

Importance levels are integral to the analysis. Of course, customer experience focuses on the guest journey from one touch point to the next, but it also includes setting expectations and meeting those expectations. It is impossible to please everyone, but it is possible to understand customer segmentation and deliver an experience that satisfies the targeted segment.

Last year, for example, Nordstrom, Target and Kohl’s each had a high Net Promoter Score. However, according to Satmetrix’s 2012 Net Promoter Industry Benchmarks survey, promoters’ comments revealed different reasons for their satisfaction level: Nordstrom NPS was tied to service, Target to breadth of products and Kohl’s to low prices.

In addition, high customer-satisfaction levels in categories with low importance highlight areas where internal efforts may be too heavily focused and should be shifted toward other, more pressing customer needs. This information is crucial in identifying how to retain promoters and locate specific areas where customer-satisfaction levels are low and gaps are high among detractors.

Unfortunately, identifying customer-service issues and service-level gaps does not always compel airline management to address root causes as any identified resolution costs will often times outweigh perceived benefits. The consultants will, therefore, complete the NPS analysis by matching revenue data with respondent data. They will identify the drivers of an airline’s NPS as well as show expected financial benefits of addressing gaps in service. In doing so, they will help an airline develop a solid NPS strategy for sustained, customer-centered profit growth.

Sabre Airline Solutions’ consulting practice is not only committed to providing quality data, but also to the analysis of “smart” data to provide guidance for the future as well as a framework for continuous improvement, including the development of an action plan for airlines to increase NPS.

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