Definitions of Customer Experience, Retention Marketing and NPS Terms
Average Order Value (AOV )
The Average Order Value is obtained by dividing sales by the number of orders or sales. This is exactly where the essential crux of the issue lies. Total revenue is not calculated on the number of customers, but always on the total number of orders or sales that have been placed. This also applies if the same customer makes multiple purchases within a specified period of time.
Benchmark / Benchmarking
Benchmarks generally denote comparative values or a scale that makes it possible to consider a result in relation to a predetermined value. In NPS, benchmarking is used to compare a score in relation to other companies in the same industry. This allows optimization needs to be identified or the evaluation on the effectiveness of strategies already applied.
Churn / Customer Churn
Customer Churn occurs whenever customers terminate an existing service, contract, or other business relationship with a company and describes the opposite to customer retention.
Churn Rate (Emigration Rate)
The Churn Rate (or emigration rate) is a metric that indicates how many customers or subscribers a company loses in a specific time period. The Churn Rate is expressed as a percentage. Depending on the type of company and the existing business relationship between the company and the customer, factors such as loss of accounts, subscription or contact cancelations and loss of repeat orders can all flow into calculating the churn rate.
Closing the Loop
"Closing the Loop" describes the action that occurs after receiving and evaluating customer feedback — closing the feedback loop. A distinction is made between internal and external feedback loops.
For example, once companies have identified dissatisfied customers with the NPS system, they can respond to them through recovery measures and engage in personalized interaction with promoters to transform detractors into promoters. With regard to the internal feedback loop, for example, the automatic forwarding of customer feedback to relevant departments or the import of customer feedback in real time via monitors can be regarded as a "closing-the-loop" measure.
The conversion rate is a KPI key figure from online marketing and describes the ratio between the total number of website visitors and the total number of conversions for a specific period of time. Conversion does not necessarily have to refer to a purchase or transaction, but can also be defined by other objectives such as subscribing to a page or subscribing to a newsletter.
The conversion rate is calculated in the following way: Number of transactions / number of visits x 100. It is expressed as a percentage.
Customer Experience refers to the experiences customers have when interacting with businesses. Customer Experience can be designed indirectly or directly on the company side, but always includes the individual response of the customers. Therefore, the Customer Experience cannot be fully predefined.
The term is widely discussed, which is why different definitions with different priorities are circulating.
Customer Experience Management (CEM/CEX)
Customer Experience Management, also known as CEM or CEX, describes all the activities and processes that a company performs in order to organize, design or respond to interactions with customers. The goal is to meet the expectations of customers in relation to every single interaction within the customer lifecycle. In the long term, this is intended to strengthen customer satisfaction and retention.
The Customer Journey, also known as Buyer's Journey, describes the complete, individual experience a customer has with a brand or company. It covers all touchpoints as well as interactions, i.e. from the time of the first perception/contact with a brand/company to the purchase being made.
Successful brands and companies are often characterized by a seamless Customer Journey in which all individual touchpoints interlock and contribute to a smooth process and thus to a positive overall experience.
Customer Journey Mapping
Customer Journey Mapping, on the other hand, describes a visual process in which all existing touchpoints between brand and customer are identified, analyzed and optimized. In addition, new touchpoints are built in to this process to gradually but purposefully increase the customer's commitment and customer loyalty.
Customer Lifecycle describes each customer's process from considering making a purchase, through to the actual purchase process to binding to a product or brand.
While the term Customer Journey describes each customer's individual experience and interactions, the term Customer Lifecycle refers to the process controlled by the company.
Customer Lifetime Value (CLV)
Customer Lifetime Value is a measure of business administration. It indicates how much revenue a customer generates over the course of their customer relationship– that is, as long as repurchases are made - to a specific company. CLV is therefore to be understood as the average value that a customer will have for a company over time or in the future.
In addition to actual revenues (historical data), the calculation therefore also includes expected revenues. This means that a distinction must be made between actual and possible customer value.
Customer Relationship Management (CRM)
CRM describes the strategy for maintaining the relationship between a company and an existing or potential customer. Companies can use a CRM system to track and analyze customer behavior during the Customer Journey. Based on the data collected, CRM managers can contact their customers in a personalized manner, retain them and optimize the appropriate sales processes.
Customer Retention describes an organization's ability to retain its customers over a period of time. High customer loyalty means that many customers return to a company to continue using a service or product– that is, make repurchases.
The most common metric to measure customer loyalty is the Net Promoter Score.
In NPS logic, detractors refer to all customers of a company who give a net promoter score between 0 and 6. These customers are also called critics.
They are expected to be more dissatisfied and more likely to churn.
Detractors can often be recovered through personalized measures and often become the most loyal customers.
Experience Data is customer data collected through the NPS system that explains the emotions and motivations behind customer behavior during the customer journey.
Interaction points (see also: Touchpoint(s))
Interaction points, like the term touchpoint(s), describe all interactions between a customer and a company or brand. They are used in Customer Journey mapping to list each interaction. They can contain information about emotions, satisfaction data and other information.
Net Promoter Score (NPSⓇ)
NPS or Net Promoter Score measures the probability that a customer would recommend a product, service or brand to friends or colleagues on a scale of 0 to 10.
In the second step, this quantitative query of the score is supplemented with an open comment field with qualitative data.
Based on the submitted score, customers are categorized into 3 classes: Promoters (score 9 or 10), passives (score 7 or 8) and detractors (score 0 to 6). Finally, to calculate the total score, the percentage of detractors is subtracted from that of the promoters.
The universal application possibilities, as well as the simplicity of the survey methodology, make the Net Promoter Score and the Net Promoter System the most decisive and important instrument in the field of customer experience and retention management.
Net Promoter System (NPSⓇ)
The Net Promoter System (NPS) includes the Net Promoter Score as well as the open text feedback, i.e. customer comments. The Net Promoter System goes beyond the collection of a score and feedback and also includes so-called "closing-the-loop" measures. These close the feedback loop to the customer, for example:
Recovering customers through personalized measures, to encourage recommendations on evaluation portals, identifying Pain Point(s) (see definition) and to initiate internal improvements based on this.
This results in the use of NPS as a means to drive customer loyalty (also: retention), resulting in a longer customer lifetime and thus a higher customer lifetime value.
NPS alerts are notifications that are automatically sent to companies, according to predetermined conditions.
For example, you can set an NPS alert that triggers automatic notification of responsible employees whenever your Net Promoter Score is in the risk area.
Pain Points generally refers to those interactions that are associated with a negative customer experience from the customer's point of view and are therefore not conducive to a long-term relationship.
Within the NPS logic, passives refer to all customers of a company who give a net promoter score of 8 or 7. These customers are also referred to as indifferents and usually have a neutral attitude towards brands, products and services.
When offerings that they seem to like better, they often switch to the competition. Their risk of emigration is therefore relatively high, but difficult to calculate due to a lack of emotional attachment to the company.
Promoters, in NPS terms, refers to all customers of a company who give a Net Promoter Score of 9 or 10. These customers are also referred to as fans and are considered to be particularly satisfied.
Promoters are significantly more likely to recommend products, brands and services. They also usually have a particularly high repurchase rate and are among the customers with the highest average shopping baskets.
In accordance with the Net Promoter System, it is therefore advisable to bind these customers more closely to the company and to convert detractors and passive customers into promoters.
A relational survey is a specific form of NPS survey that measures the customer's loyalty to a company. For this, the general relationship between customer and company is considered, not touchpoint related as in the transaction survey.
This is done by the Net Promoter Score, which indicates whether the customer would recommend a company or not.
Retention Rate Formula
To calculate the Customer Retention Rate, the following formula is generally used:
Customer Retention Rate = ((Number of customers at the end of the specified period - number of customers won in the same period) / Number of customers at the beginning of the specified period) X 100
In order to calculate the retention rate, a fixed period is first defined, which must be considered. Any period can be freely chosen to calculate the Retention Rate, whether a year, a quarter or a month.
Return on Investment
Return on Investment (ROI) is a metric used to evaluate an investment's profit. ROI measures the amount of return on a particular investment directly in relation to the cost of that investment.
SaaS means "Software as a Service" and describes a software or an IT product operated by an IT service provider and used by other companies as a service. Thus, SaaS companies operate in the B2B sector.
Any interaction that takes place between a customer or potential customer and a company either in person or digitally, is called a Touchpoint. Touchpoints can be created, for example, via email, social media, websites, landing pages, advertisements, ordering and purchase, or even customer service.
It should be noted that the touchpoints do not refer to the channels, but rather to the specific and individual activities. The combination of all Touchpoints in chronological order is commonly referred to as the Customer Journey. A detailed knowledge of these forms the basis for improving your Customer Experience.
The Transaction Survey is a specific form of the NPS survey and examines the experiences a customer has had during a particular transaction or interaction. The question therefore relates to a concrete trans- or interaction. For this purpose, the NPS survey is presented at so-called touchpoints.
Voice of the Customer (VoC)
Voice of the Customer is a term used in particular within information technology and marketing. It describes the process of raising expectations, preferences as well as the dislikes of customers with regard to your product or service, and is therefore a method of market research.
In the process, customer wishes and needs are looked at in detail, structured hierarchically and prioritized according to their relative importance as well as satisfaction with current alternatives. The survey includes both quantitative and qualitative surveys.