Aite Group,a research firm has developed a new metric they have called "referral performance score. This metric tracks the percentage of customers of financial institutions recommend other customers and who may increse their own account balances and add new accounts.
The Aite Group suggests that this new metric, (the referral performance score, "RPS") is an improvement over the net promoter score (NPS). This new metric goes beyond intention and measures customer actions. They note that the new metric combines both growth and referral behavior. Since it is based on behavior Aite suggests that it provides a more accurate measure of customer loyalty. Their new metric were developed from the following industry statistics:
1. The percent of customers who referred new customers.
2. The percent of customers who grew thier relationship with the institution.
For example Aite surveyed 1115 consumers and found 5% referred their financial institution and grew their accounts in the year ending March, 2012. On the other hand 47% referred their credit unions compared to 32% who referred a large bank. They also found that 7.5% of credit union customers grew their assets.
The referral performance metric is computed by multiplying the percentage who refer the bank by the percentage who grew their assets. An example is the credit union with 47% referral and 7.5% grwoth in assets. This yields a referral performance metric of 47 times 7.5 which yields a score of 352.5. The range of values for the referral performance score is 0 to 10,000. I am not sure what 100% referrals means since a custoemr can provide more than one referral; but I think 100% of customers can provide growth iin thier accounts.
The score obviously needs some calibratio so that one can decide what a score of 352.5 means. Is it good or bad? It seems to count all financial institutions the same no matter the size. That may suggest another refinement.
The bottom line is this appears to be a more direct measure of customer loyalty than just intention. This metric has potential but until there is better understanding of the impact of institutional size on the metric and some understanding on what is a reasonable scale, the metric has limited value.
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3 comments:
Dr. Bluell:
As the author of the Aite Group report, I'd like to thank you for writing about it, and your insights.
I'll be the first to admit that the metric is far from perfect. But, then again, no single measure it.
What I was attempting to create was a measure to replace the Net Promoter Score which I believe is of no value, in that it captures intention, at a single point of time, using a scale that is interpreted differently by different customers.
RPS looks at behavior, not intention.
I agree that a better measure would be one that captured the number of referrals an individual customer made, and, if you want to take that to the next step, it would capture the QUALITY (i.e., profitability) of the new customers that were referred.
But for most financial institutions, that's a step too far. I wanted to define a metric that could be (somewhat) easily measured and tracked. An individual bank can refine the measure as they get more sophisticated about the tracking.
As for your comment about knowing whether 325 is good or bad, you raise a valid point. What I'm recommending to banks is that their score can only be evaluated in the context of their competitors' scores and -- more importantly -- in the context of how their own score is improving or declining over time.
Thanks again for writing about this.
Ron Shevlin
Aite Group
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