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. You can find even more information about "NPS Benchmarks" and compare your NPS with competitors in our NPS Benchmark Database.
Brand loyalty means that buyers are regularly willing to pay the full price for a brand and buy it regularly. A brand offers advantages that a simple product does not. It not only simplifies the acquisition of new customers, but also increases the loyalty of existing customers. More information about brand loyalty can be found in this article.
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.
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 Effort Score
The Customer Effort Score (CES) is used to measure the ease of an experience with an organization. It asks customers to rate the ease of using products or services on a scale of “very difficult” to “very easy”. You can find more information on measuring customer satisfaction and proven key metrics here.
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, 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.
Customer focus means the consideration and best possible handling of customer wishes and expectations. The customer focus therefore refers primarily to pronounced and obvious customer expectations. The company does not – yet – want to change its entire mission statement, but will initially use the focus on the customer as a marketing strategy. The customer focus is thus a rather static and passive paradigm shift in the corporate culture. More information about customer focus and how companies use it properly can be found in this article.
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 describes a visual process in which all existing touchpoints between brand and customer are identified, analyzed, and optimized. In addition, new touchpoints are designed in this process in order to increase the commitment and customer loyalty of the customer step by step but in a targeted manner.
Customer Life Cycle
Customer Life Cycle 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 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 orientation means that the company does not only focus on the customer, but that the customer is rather the trend-setting and decisive factor for company activities. Customer orientation succeeds by systematically recording and analyzing the wishes, needs and expectations of customers at regular intervals. The insights gained from the analysis are then implemented in every area, from marketing, to product and service. More information about Customer Orientation can be found in this article.
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 the ability of a business to retain its customers over time. High customer retention means that many customers return to an organization to continue to use a service or product – in other words, to make repeat purchases. The most common metric for measuring customer retention is the Net Promoter Score. Learn more about customer retention here.
Satisfaction is an extremely subjective parameter that is influenced by many known and unknown factors. Basically, every action is carried out with a certain expectation, be it the gathering of information, the purchase process, the use of support, or the first-time use of the product. If all expectations are met or even exceeded, customers are satisfied and will most likely buy again and even recommend the company to others. However, if expectations are not met, the customers are dissatisfied. More information on the topic of customer satisfaction can be found here.
Customer Satisfaction Score
The Customer Satisfaction Score (CSAT) provides information about the overall satisfaction of individual customers regarding a specific interaction (e.g. delivery) with the company. This key figure is not an indicator of customer loyalty. You can find more information on measuring customer satisfaction and proven key metrics here.
Within the Net Promoter System, 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 assumed to be more dissatisfied and more likely to leave. Detractors can often be won back by personalized measures and often become the most loyal customers. Our article "7 reasons why it is worthwhile to respond to detractors" provides more information about detractors and why you should take their feedback to heart.
Existing customers are customers who purchase from the same company regularly, but at least twice a year. Above all, however, existing customers are understood to be regular customers. They are very important for companies, because the rule of thumb is that it is about five times more expensive to win a new customer than to keep an existing one.
Experience Data is customer data collected through the NPS system that explains the emotions and motivations behind customer behavior during the customer journey.
A feedback loop describes the continuous feedback from the customer and the company's reaction to it. It is an ongoing process that describes the interaction between customers and the company. By repeatedly asking their customers for feedback on their products or services, companies can pinpoint weaknesses, effectively optimize workflow, and focus more on their customers. More information about feedback loops can be found here.
A feedback software is a system that allows you to ask customers for feedback and collect and evaluate their answers. It collects customer feedback in a central location and provides insights into the experiences and expectations of customers. In this article , you can learn more about the types of survey software available and the benefits it brings.
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. In this article , you can learn how to correctly identify and improve touchpoints in the Customer Journey.
Customer loyalty is the voluntary commitment of the customer to a store, a product or a brand. It is the opposite of the hard customer retention that is created, for example, by contracts or economic or technical constraints. More information about customer loyalty is provided by this article.
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. Learn more about the Net Promoter System and the Net Promoter Score here.
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.
Referral marketing is often also called word-of-mouth marketing. It is not based on classic marketing channels but on the personal recommendation of existing customers, which influences the opinion and purchase decisions of others. The prerequisite for this is usually that the customer is very satisfied with the company's product or service. Although the focus is mainly on the customer, employees and other partners of the company can also play a role in referral marketing. For tips for sucessful Referral Marketing, read this article.
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 Marketing or Customer Retention Marketing focuses on retaining existing customers. Together with customer care, retention marketing is part of the area of (customer) relationship marketing, also known as CRM and is primarily aimed at the company's profitable regular customers to ensure that they buy even more. For for more information about Retention Marketing, read this article.
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.