One is a Lonely Number: Especially When it comes to Driving Member Loyalty

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1 One is a Lonely Number: Especially When it comes to Driving Member Loyalty

2 Recently, IHRSA reported a preliminary Net Promoter Score (NPS) benchmark for the health and fitness club industry. According to the survey, conducted in partnership with the Retention People (TRP), the industry achieved a score of 43. Since the inception of the study in 2012, the industry has been inundated with information proclaiming NPS as the ultimate measure of member loyalty. Unless you ve been holed up in a cave, you, like most others in our industry, have been behaviorally manipulated into believing that knowing and growing this single measure is the magic bullet to enhanced member loyalty, enhanced member retention and continuous profitability. This is not to say that the NPS is not a good metric for measuring the experience of your members. There is an enormous volume of data, statistically validated or otherwise, that provides a reasonably compelling rationale for using NPS. After all, Frederick Reichheld, who first introduced the business world to NPS in his ground breaking article, The One Number You Need to Grow which appeared in the December 2003 issue of Harvard Business Review, and consequently his top selling books, The Ultimate Question: Driving Good Profits and True Growth and The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer Driven World has demonstrated the close correlation between NPS and business growth. What our industry has not been exposed to, but should be, is the work of others that show that NPS, while a valuable and easily understood metric for customer loyalty, is not necessarily the only metric, and in many cases not the best metric for helping management drive member loyalty. Our goal in this article is to bring forth insights that will allow operators to make a more informed decision about how they measure member loyalty and consequently the actions they can take to enhance member loyalty, tenure and spend Woodlake Drive Dallas, TX Pg. 2

3 Is NPS a good benchmark to compare member loyalty across clubs? According to some member loyalty experts, such as Randall D. Brandt, Ph.D. and Vice President at Maritz, Inc., comparing NPS scores across industries may not provide valid comparisons. In a study published by the Temkin Group in 2012 looking at NPS for 175 companies across 19 industries, they found considerable variability in the average NPS across industries. The same can be said for comparing the NPS scores of two businesses whose value propositions are different. The NPS score is a reflection or outcome of a business ability to overdeliver on its value proposition, or the expectations of its clients. For example, the value proposition of a budget club, and therefore the expectations of its members are completely different than the value proposition of a luxury club and the expectations of its members. An experience that drives delight in a budget club might be a detractor for a luxury club. In our research we have found that the members of luxury and premium clubs hold management to a higher standard than those of less costly clubs. Consequently, the NPS for luxury clubs could be lower than that of a budget club. The old saying of don t compare apples to oranges rings true when it comes to benchmarking NPS across different value propositions, just as it does if you try to make comparisons across industries. Can NPS drive loyalty, retention, tenure and increased spend? In an article that appeared in a January 2007 article in Marketing Management written by D. Randall Brandt, Ph.D., VP at Maritz, Inc., he wrote; NPS isn t always the best predictor of customer behavior or business results; some measures perform better in particular markets and sectors, or for particular types of customers. What Dr. Brandt is saying is that the validity of NPS is highly dependent on the market, market segment and even the particular customers of a business. In other words, leaving your future to one number may not be the best Woodlake Drive Dallas, TX Pg. 3

4 decision to make; instead you should look at several measures to ensure you are covering the bases. Our work with operators of some premium and luxury clubs, as well as with other hospitality businesses, shows that the score related to the question, How likely are to you remain a member has greater predictive value than How likely are you to recommend the club to others? In our work, we look at four outcome measures for member loyalty (How delighted are you with your overall experience with the club, how likely are you to recommend the club to others, I love the club, and how likely are you to remain a member). By assessing these four outcome measures we are able to provide a more comprehensive grasp of how well the club is performing on driving loyalty. Can NPS tell you what s working or what needs to change? NPS is an outcome measure, not a process measure. It provides you with a measurable outcome that can be tracked over time, but what it can t do is tell you what s not working, what is working or what needs to change. If you really want to drive loyalty, retention, tenure and profitability, then you want to uncover the drivers and influencers that impact these outcomes. To do this you have to measure what s important to the customer, what s not so important to the customer, and how well you are performing on each of them. We call these process measures. By understanding how these perform you can put in place actionable steps to create positive and lasting change. In summary, NPS is a good outcome measure of loyalty, but not necessarily the best one for your operation. Furthermore, if you want to drive improvement in loyalty and advocacy then you ve got to go beyond NPS Woodlake Drive Dallas, TX Pg. 4

5 ClubIntel is the club industry s leading member and brand insights firm. Using a unique approach to understanding the club consumer that we call ClubologyTM, we help clubs and equipment manufacturers understand, appreciate and leverage consumers needs, wants, and personal journeys, leading to a more loyal member base, happier employees, and long-lasting profitability. Everything we do is driven by our belief that human connections are the longest lasting and most profitable. Our services are designed to help you uncover and capitalize on the most powerful drivers of brand loyalty and experience. Our approach, which is uniquely human-focused are built around: Insight Data can tell you a lot, but it can t speak to you. We have the instinct and experience to decode the numbers and tell you what your members and employees are really saying. Inspiration Finding the intangible qualities that turn members into brand fanatics, and employees into apostles, takes an empathy and passion you can only find here. Impact Our unique, human-focused approach has helped clubs and manufacturers across the globe reap the benefits of increased member loyalty, higher employee retention and productivity and greater business profitability Woodlake Drive Dallas, TX Pg. 5