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Philips: Do I need to use metrics to understand my customers?
Have you ever been a marketing researcher or a marketing manager? If so, you might have been in situations where you were supposed to answer questions regarding customers behaviour, firm’s profitability, company’s market share, to name but a few. In order to answer such questions marketers need objective measures to quantify various activities of a firm and this can be done through marketing metrics. Concerning this, in this weblog we are going to see why and how businesses use marketing (evaluation) metrics. As an example, we examine how and why Philips uses marketing metrics to improve the quality of its customer care centre and customer satisfaction.
What is a Marketing Metric?
As Kotler (2009) notes metrics refer to the set of measures that can help marketers and firms to quantify, compare and understand their marketing performance. Marketing metrics as a tool box help marketers with monitoring performance of a business from different angles: from the consumer, to the sales force, to the ever-changing media environment. Customers are one of the most important elements of all businesses without which companies have no income, no profit and therefore no market value. Now in order to continuously track and observe customers and ensure the healthiness of the customer base, scholars have developed relevant customer metrics, based on which marketers can measure how customers are performing, and how satisfied and profitable they are (Gupta & Zeithaml, 2006).
What is the Net Promoter Score (NPS)?
As Roos and Gustafsson (2007) note, these days competitive markets have made firms to turn their eyes to retention practices. Regarding this, one primary firm-customer performance measure to control is ‘customer satisfaction’. Previous studies suggest that satisfied customers show a high level of loyalty to the brand and are more likely to recommend the brand to others(Parasuraman, Zeithaml, & Berry, 1988; Taylor & Baker, 1994). In order for a company to have control of levels of satisfaction of customers, the first step is to measure customers’ satisfaction. Concerning this, a popular metric to help marketers in pursuing this goal is NPS (Net Promoter Score). NPS is a marketing metric that can show the degree of which customers will recommend products, services or company to the other people and also can be considered as a proxy for customer satisfaction and loyalty (Bendle, Farris, Pfeifer, & Reibstein, 2016).
In order to calculate this metric, companies conduct a survey and ask their customers (on a ten-point scale) how likely they are to recommend the product, brand or company to their family or colleague (Bendle et al., 2016). “A company’s net promoter score is the difference between the proportion of customer placing themselves at points 9 or 10 (called Promoters) and the proportion of customer placing themselves between 0 and 6 (called detractors’). Respondents on scale point7 and 8 called ‘neutrals” (Schneider, Berent, Thomas, & Krosnick, 2008). If companies calculate the numbers of 9s and 10s, then deduct the number of 6s or bellows, the result you get is a company’s Net Promoter Score. The result of NPS is related to customer behaviour and business outcomes.
NPS Construction is:
“Net Promoter Score(I) = Percentage of Promoters(%) – Percentage of Detractors (%)”(Bendle et al., 2016).
Why and how Philips use Net Promoter score?
Philips is a Dutch technology company which was established in Eindhoven in 1981, with its focus on electronics area. Philips is one of the biggest electronics companies in the world. Philips Electronics as a $33 billion business, performs in three individual sectors namely: health care, consumer lifestyle, and lighting.
For a company of Philips’ size, it is really important to have a good sense of what customers are thinking about the products and services they receive. Hence, Philips puts NPS at the centre of its management processes. The choice of NPS for Philips is mainly because of its close ties to retention and company’s income.
The company uses NPS to measure its customer satisfaction and find ways to improve the quality of its products and services. For Philips NPS is something even beyond just a metric to measure satisfaction and has become a source of action as well. For instance, as a results of the survey to measure NPS Philips noticed some issues around their customer service. The complaints were mainly about Philips not giving customer service during weekends. In response, the company decided to improve its service at customer care centre, by providing service on weekends. The effect of this action was quickly reflected in the next NPS measurement where customers reacted positively leaded to an increase in the number of prompters.
It is also interesting to know that Philips’ strategy in using NPS is not to delight its customers. Their goal is not on how they can delight their customers, in fact Philips just wants to do better than the competitors. Philips goal is that to be in the leadership position vis-à-vis its competitors in all its lines of business.
Bendle, N. T. a., Farris, P., Pfeifer, P. E., & Reibstein, D. J. (2016). Marketing metrics : the manager’s guide to measuring marketing performance: Upper Saddle River, New Jersey : Pearson Education, Inc., 
Gupta, S., & Zeithaml, V. (2006). Customer Metrics and Their Impact on Financial Performance. Marketing Science, 25(6), 718-739.
Kotler, P. (2009). Marketing management: A south Asian perspective: Pearson Education India.
Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1988). Servqual. Journal of Retailing, 64(1), 12-40.
Roos, I., & Gustafsson, A. (2007). Understanding frequent switching patterns. Journal of service research, 10(1), 93-108.
Schneider, D., Berent, M., Thomas, R., & Krosnick, J. (2008). Measuring Customer Satisfaction and Loyalty: Improving the ‘Net-Promoter’Score. In Poster presented at the Annual Meeting of the American Association for Public Opinion Research, New Orleans, Louisiana).
Taylor, S. A., & Baker, T. L. (1994). An assessment of the relationship between service quality and customer satisfaction in the formation of consumers’ purchase intentions. Journal of Retailing, 70(2), 163-178.