Editor’s note: This is the first part of a two-part series about customer loyalty in the real estate industry. Part I examines the Net Promoter Score and why it may not be entirely applicable to the real estate brokerage industry, and Part 2 examines why even satisfied customers may not actively promote your services.
Real estate satisfaction is short-lived and clients do not engage in transactions often enough to sustain it for repeat business.
A real estate transaction lacks word-of-mouth promotional appeal, provides no social currency, the risk of a failed referral, and is limited by local marketing reach.
For this reason, the Net Promoter Score — a loyalty measurement that uses customer responses to a single customer satisfaction question to predict a company’s growth by repeat business and referrals — won’t work for residential real estate brokerages, in my opinion.
Introduced by Frederick F. Reichheld in his 2003 Harvard Business Review article, "The One Number You Need to Grow, the Net Promoter Score is based on a question posed to customers: "How likely is it that you would recommend our company to a colleague or friend?" They are asked to respond with a numeric rating on a scale of zero to 10 (10 is highest, zero is lowest).
Based on the rating, customers are labeled as:
- Promoters (nine to 10 rating);
- Passives (seven to eight rating); or
- Detractors (zero to six rating).
The percentage of "detractors" is then subtracted from the percentage of "promoters" to obtain the Net Promoter Score. A score of 75 percent or more is considered quite high.
The promise of the Net Promoter Score is that satisfied customers will:
1. Do repeat business with you.
2. Promote your business to others.
But does the NPS deliver on this promise for residential real estate brokers? Although, I see value in the NPS, the answer is — with a few exceptions — no.
Assumptions at work in the NPS
Let’s start with the fundamental assumption, straight from the source (NetPromoter.com): "The right goal for a company is to deliver customer experiences of such high quality that customers recognize the value in the relationship and become Promoters. These Promoters generate good profits and fuel true growth. They become, in effect, part of a company’s marketing department, not only increasing their own purchases but also providing enthusiastic referrals."
According to Satmetrix’s whitepaper, "The Power Behind a Single Number," customer loyalty is directly linked to repeat business and referrals. …CONTINUED
There are five major assumptions at work in the NPS model:
1. Ratings weight: Detractors (rating zero to six) offset Promoters (rating nine to 10) equally.
2. Causal future growth: Satisfied customers will give you repeat business and will promote your business to others. There is an underlying assumption that satisfaction is an enduring emotion for all consumer experiences leading to enthusiastic referrals, indefinitely (more on this later).
3. Customer promoter power: Customers are the major source of repeat business AND referral business leading to future growth.
4. Recommendation and promoter reliability: Customers likely to recommend a business by a nine or 10 rating are indeed promoters and will do what they say they will do — recommend your business to colleagues and/or friends. There is also the assumption that "likely to recommend" equals actual promotion — that all recommenders are promoters.
5. Applicability: With the exception of monopolies, there is an assumption that NPS works as a predictor for most businesses, whether they be product-based or service-based.
The question for this post is not whether these assumptions are valid in the macroeconomic sense, akin to some universal business truths, but whether these assumptions are valid for residential real estate brokers so that the NPS becomes a valuable predictive tool.
Studies that tried to replicate the link between business performance and the Net Promoter scores often did not find statistically significant relationships in several industries. Reichheld does admit that the universality of NPS might be limited (see "Measuring Customer Satisfaction and Loyalty, Improving the Net Promoter Score").
In my opinion, each assumption, when applied to residential real estate brokerages, is seriously flawed and therefore the NPS may not be a reliable predictor of repeat business or referrals by clients.
Pain is more powerful than pleasure (and lasts longer)
This is my general criticism of the NPS weighting assumption. Because bad news travels fast and wide, detractors are not equal to promoters, especially those who rate a company as zero or one.
Regardless of the industry, a rating of zero or one (what I call a "hater" rating) is not equal to a nine or 10 rating. It is much more powerful. The natural tendency of people is to remember and react more forcefully to negative experiences than positive ones. Thus, a zero or one rating should offset a nine or 10 by a factor of two, at least.
I give my soon-to-be-axed-and-seemingly-monopolistic-and-overpriced cable provider, Comcast, a Big Fat Zero. (They don’t have negative rating numbers, do they?) I will find any opportunity (as evidenced by the prior sentence) to express my opinion that it is a painfully deficient service company that I would not entrust even to install rabbit ears on a television set.
If I am at a party (or bus stop) and the subject of bad service comes up, I’m right there to retell my many "Crapcastic" experiences. But I digress. The point is: Bad experiences are promoted much more than good experiences — and with more verve.
The power of a bad experience was documented in "The Retail Customer Dissatisfaction Study 2006," conducted by The Jay H. Baker Retailing Initiative at Wharton and the Verde Group, which revealed that only 6 percent of shoppers who had a bad experience with a retailer contacted the company, but 31 percent told their friends, family or colleagues. …CONTINUED
Of those, 8 percent told one person, another 8 percent told two people, and 6 percent told six or more people. Overall, if 100 people have a bad experience, a retailer can lose between 32 and 36 current or potential customers, according to the study. As the story spreads, the negative experience is embellished.
Residential real estate customer satisfaction is:
- Non-recurring; and
- Subject to change.
Buying or selling a home is not something clients do every day. It is an infrequent occurrence. Therefore, the satisfaction does not live in the present mind and is not reinforced, unlike getting a white chocolate mocha with whipped cream every day (Note to self: "You gotta stop drinking those.") or using a Mac or iPhone.
Heck, it will be another seven years, on average, before they return to the scene. That past client is not likely to conjure up the same satisfaction you brought them. Due to this infrequency of experience and resultant time erosion of emotional satisfaction, you cannot rely on repeat business from most residential real estate clients. Love fades.
And sure, everything is hunky-dory when you first buy a home. You’re on cloud nine and your broker is heaven-sent. But it’s short-lived and subject to change downward. In addition to the natural time erosion of satisfaction, it fades as soon as any house, neighbor, neighborhood, etc., flaws appear, as they invariably do.
When that happens, your promoter satisfaction rating will drop to passive or detractor faster than a Saturn in a sinkhole. Discover you have a crappy neighbor or that said neighbor got a better deal on their larger, better house, and your rating is spit.
If I’m wrong, the NPS score should remain the same if you send it to clients a year later. I highly doubt it would. (And while you’re at it, ask them who they actually referred to you.)
In the end, as I see it, the satisfaction experienced in a real estate transaction is as fleeting as your latest Zestimate. "The thrill is gone," or so sang B.B. King.
Solicited ratings reflex
This is another of my general criticisms: A 10 ain’t what it used to be, when the NPS was postulated in 2003. Consumers are now so accustomed to being asked for ratings they routinely hand out nines and 10s — like they were handing out high fives at a blogger convention. I call it "high ratings reflex."
Companies make a big assumption that consumers read the question and took it seriously when they checked 10. The 10 means they were happy (or just wanted to make you happy, or wanted to avoid having to explain to you why you weren’t really that hot).
A tip for ratings-weary consumers: Give them a five and watch them jump through hoops for you (hmm, maybe I can get a white chocolate mocha). It does not mean they were actually going to promote you. It’s like the waitress who comes by and asks how you like your (overcooked) pasta. "Fine. Thanks."
If you really want promoters, there are far better and more reliable ways to get them.
Heck, an unsolicited testimonial beats a satchel full of scorecard 10s any day.
Next: Why satisfied clients may not promote your business.
Joseph Ferrara is publisher of the Sellsius Real Estate Blog and a partner in TheClozing.com, a real estate news aggregator site. He is an attorney with 25 years of experience in New York, and he also coaches agents on the use of blogging and social networking.
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