How to Manage Utility Net Promoter Score Performance

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How to Manage Utility Net Promoter Score Performance

“And when you speak of me, speak well.”
Bull Durham  

As utilities seek to evolve their customer management performance goals beyond traditional customer satisfaction metrics, utilities are evaluating updated measures and management approaches that better reflect success in the transforming utility market—one of those is the Net Promoter Score, or NPS. The NPS metric is based on a question regarding the likelihood of a customer to recommend the company to others. The scale is 0–10 and based on the percentage of those posting a rating of 9–10 (Promoters) minus the percentage of those rating 0–6 (Detractors), and then multiplying the result by 100. The Utility Trusted Brand & Customer Engagement™: Residential (UTBCE) study has the most robust database to help utilities measure, benchmark and manage NPS. The study has been tracking NPS quarterly since 2016 and provides data-based analysis, modeling and insights to help utilities perform well on this metric.

The formula for calculating NPS. Net Promoter Score

The Core of the NPS Debate

For both the utility and the customer, there is confusion regarding why a customer would be compelled to “recommend” their regulated utility. If they want utility service, they use the utility. How can a monopoly motivate customers to recommend it? And, what is the value to the utility?

The Cons of Using the NPS Metric

  1. Our UTBCE study shows that NPS correlates with customers making a positive comment about their utility only about one-third of the time. Therefore, motivating customers to make positive comments won’t ensure success in the NPS measure.
  2. Those promoting the NPS metric say it relates to “loyalty,” which can be true in a competitive industry, but that correlation is very weak for regulated utilities, likely due to the monopoly utilities have on electric and natural gas distribution.
  3. Finally, and perhaps most importantly, the single question itself makes it hard to understand the true drivers behind why customers gave their utility the rating, and transaction performance (which utilities tend to actively measure) also correlate very little with NPS performance.

The Pros of Using the NPS Metric

  1. NPS is based on a single question, which makes it easy to collect and calculate.
  2. NPS reflects an assessment customers provide for their utility. This could be useful if a customer recommends an offering to someone based on their experience with the utility.
  3. It can be benchmarked like any other rating.
  4. It can be better understood when it is asked alongside other ratings and management diagnostic questions.
  5. Analysis can be applied to the three categories—Detractors, Passives and Promoters. Management actions can be developed for these categories separately, which makes it possible to develop drivers of an NPS score to be more understandable and impactful.
  6. Last, but not least, loyalty will become more important for the utility industry in the near future as distributed energy, deregulation, consumption management and other current trends continue. As these trends continue, utility brand strength and customer loyalty will be put to the test.

Our UTBCE study asks an NPS question that allows utility clients to benchmark themselves to other utilities and industries. From this energy brand research, we have also developed the tools and perspectives on how to manage NPS performance.

Managing Utility Net Promoter Scoring

Utilities could improve their NPS by lowering the percentage of their Detractors and/or increasing the percentage of their Promoters. But which one is realistically possible? Having provided research and advice to utilities for a couple of decades, I am convinced that converting a sizeable number of customers into Promoters is a very expensive, if not impossible, task for utilities. The NPS for Promoters abandons the traditional wisdom of top-three box and focuses on top-two. Yet, we know that many customers don’t use a full rating scale and use a rating of “8” as their top score on a 0-to-10 scale. Plus, those rating their utility an “8” are generally being served very well already. It will likely take a significantly larger amount of investment and capital to convince customers to rate their utility a “9” or “10” than to convince customers rating their utility a “6” to change their rating to a “7.” For utilities, the most effective and economical way to improve NPS is to focus on turning Detractors into Passives. To do that means understanding the drivers of Detractors’ poor ratings and addressing utility weaknesses that keep Detractors from rating their utility at least a “7.”

The Drivers of Net Promoter Scoring

Our study finds that each category of NPS (Promotor, Passive and Detractor) has a different model to manage. Detractors, the segment with the greatest potential for improvement, have a dominant sensitivity to their utility’s Brand Trust level. Therefore, building customer trust will be the most critical path to improving NPS. Passives are equally sensitive to Brand Trust and Service Satisfaction. Promoters already trust their utility, are satisfied with service levels, and are ready to take advantage of their utility’s value-added offerings. So, Promoters are utilities’ best target market for product use. Below is a chart that shows the important drivers of the three NPS segments.

% Influence on Net Promotor Scoring

Net Promoter Score Results

From 2016 to 2017, NPS for the utility industry declined from 12.8 to 12.1. This performance decline was driven by customers moving into the Detractor segment, even as the Promoter segment didn’t change. This underscores the idea that Detractors are the customers to focus on, as they have the greatest potential to be moved cost-effectively.

NPS by Utility Type, Q2 2018 Update

Natural gas utilities have a leading position due to their higher Brand Trust and Service Satisfaction scoring. Also, there is a growing preference for natural gas service due to it being less expensive than electric and a more environmentally friendly fuel. Combination utilities declined in 2017 on NPS as their Brand Trust score also declined significantly, even as their Service Satisfaction score increased. This again indicates that NPS is best improved by focusing on Brand Trust than on Customer Satisfaction levels.

Natural gas utilities tend to post higher Brand Trust scores compared with electric utilities, and they tend to have higher NPS as the chart below shows.

Top 20 Utility Brands_updated Q2, 2018

Customer Targeting Is Critical

The better you know your customers, the more you will be able to improve NPS or any other metric. This requires you to place your customers into unique and identifiable segments, assess your current performance with customers and develop improvement plans. What does each segment require that we are not currently providing, or providing well? What is the upside potential based on benchmarking to other utilities? What programs do we need to communicate or develop to improve NPS performance? Our study contains customer persona segmentation research that allows utilities to address these questions and then target customers at the geo-level in their territories. Targeting customers with unique solutions is the most cost-efficient and impactful way to improve your NPS.

Residential Customer Segment NPS Scores_Updated Q2 2018

Our study tracks NPS performance for 130 electric and natural gas utilities and provides cross-industry NPS so you can assess how you perform relative to other companies serving your customers.

Let’s keep the discussion going. Feel free to contact me for your Net Promoter Score or to find out how Market Strategies can measure and advise on how to meet your customer management goals.

Review the details on the Utility Trusted Brand & Customer Engagement: Residential Study

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