The Powerful Pairing of NPS and Willingness-to-Pay.
Many US businesses and global companies are increasingly adopting NPS (net promoter score) as a key metric to measure and evaluate customer experience. A key question is if a high NPS score has a true impact on a company’s Pricing Power? Recent combined and parallel research of WTP and NPS has been intriguing, promising and potentially synergistic.
NPS and WTP are arguably two of the most popular and significant metrics in industry today, net promoter score and willingness to pay. One is a strong directional indicator of brand loyalty; the other is a core research objective that suggests the underlying pricing power of an individual brand. Yet both have naysayers; some say NPS which provides a single integer, is too simplistic and others question whether WTP is too idealistic; that pricing analysis in the absence of the real exchange of currency has limited value.
Proponents of both metrics acknowledge the respective critiques but argue that “perfect should be not the enemy of good”; that the respective data when looked at in a holistic array of category, competitive and corporate information can provide a clear snapshot of reality at a given point of time. But now research practitioners such as Atenga Insights are going one step further and offering NPS as an adjunct element to pricing research and promising that the resultant synergies mitigate many of the stand alone issues noted above. Specifically, NPS can no longer be accused of being overly simplistic if clients can also review a corollary and parallel set of impacted pricing data; and WTP research is not as synthetic if tethered and influenced by real world brand loyalty responses.
So how does this work in practice. The perceived potency of net promoter score research is based on the core marketing tenet that there is no better form of advertising and brand growth than word of the mouth and the evangelism of a happy customer. The historic marketing axiom that the opinion of a contented customer has limited reach no longer holds true in the age of social media which empowers virtually all individuals with a personal megaphone that can reach tens of thousands of prospects. Indeed, all one has to do is observe the impact of influencers on a brand even though their endorsements are often transactional in nature.
Having far more happy customers than disgruntled ones, puts a floor under a brand’s market share but the upside can be muted by similarly high satisfaction levels of like competitors, particularly in a quasi-oligopoly where there are five or six viable players competing for the same prospect base with similar products. This is where pricing research and the identification of key price walls and pricing plateaus, clarifies pricing direction for either optimal unit sales or net profit.
The combination of NPS and WTP get provide corporate executives a better sense of both the upside revenue and profit potential of a product or service as well as the downside risk. A high NPS score suggesting strong customer allegiance can give executives a higher degree of confidence in increasing price; and here we know that even a small 2–3% increase in price can impact the bottom line by as much as 25% according to studies by McKinsey Consulting. Moreover, two parallel research studies that exhibit similar directional readings will make it easier for product managers to upsell to top management and top management to get true buy-in from “Sales” which is always a critical element for successful field execution.
Best of all combining NPS and WTP typically involves only a modest upcharge as the responses are accrued from the same customer and prospect database. Our largest clients have been enthused by the new pairing of pricing research and brand loyalty indexing, and more and more are mandating the combined process. If in the end, the pairing means higher client confidence in either or both metrics, then as business executives we are thrilled to see research converted from the realm of the “idealistic and simplistic”, to evolved marketing strategies that are pragmatic and more profitable.
CEO Atenga Insights