The Net Promoter Score (NPS) is one of the metrics that is used to measure Customer Loyalty. You might not be aware of it, but you most likely have participated in its measurement several times.
You know it in the form of a simple questionnaire which asks you -for example in a scale from 0 to 10, how likely you are to recommend that service or product to a friend, etc.
What is the NPS?
The Net Promoter Score was introduced in 2003 by Fred Reichheld (Harvard Business Review article: “One Number You Need to Grow”). NPS as a registered trademark is co-owned by Fred Reichheld, Bain & Company, and Satmetrix Systems.
Reichheld’s idea is based on the principle you can test whether a consumer likes a brand/ product/ service strong enough so that they would recommend it to others. He developed NPS as a ‘natural extension’ of his Customer Satisfaction measurement proposals from the 90’s. Reicheld thought that a person beyond “just been merely satisfied” by a company and its services/products, he/ she will start promoting that company by telling others about the brand. Such a person is effectively marketing the company’s services.
Bain analysis shows that “sustained value creators—companies that achieve long-term profitable growth—have NPS two times higher than the average company. And Net Promoter System® leaders on average grow at more than twice the rate of competitors”.
Again, NPS is used as a Customer Loyalty metric to gauge the loyalty of a firm’s customer relationships. NPS is also a way to measure brand awareness.
How do you measure the NPS?
NPS groups all customers/ consumers of any service or product into 3 categories:
- “Promoters” are loyal customers/ enthusiastic customers who keep buying from a company and urge their friends to do the same.
- “Passives” are satisfied but unenthusiastic customers who can be easily wooed by the competition.
- “Detractors” are unhappy customers trapped in a bad relationship.
Customers are categorized based on their answer to the ultimate question: How likely are you to recommend us/ this company/ this product/ this service to a friend?
The Net Promoter scale is a simple one with numbers from 0 (the lowest level of satisfaction) to 10 (been the ultimate level of customer satisfaction and loyalty). So, you use a number from 0 to 10 to answer that question.
NPS- theory ‘defines’ as:
- Detractors, as anyone scoring us between 0 – 6
- Passives, as anyone scoring us between 7 – 8:
- and Promoters, as anyone scoring us between 9 -10
The Net Promoter Score is equal to
NPS = (The percentage of promoters out of total respondents) – (The percentage of detractors out of total respondents)
A Practical Example
Kwame runs a restaurant and has decided to check the Net Promoter Score of his restaurant. He sends out questionnaires via the internet to 120 clients. The data below is what he receives.
Total Number of Questionnaires sent: 120,
- Detractors: 16,
- Passives: 31,
- Promoters: 73
To calculate his Net Promoter Score, Kwame can choose to
Strike the percentages of the 2 groups i.e. we have
- Detractors: (16/120) x 100= 13.33%
Promoters: (73/120) x 100=60.83%
Net Promoter Score: 60.83% – 13.33% = 47.5%
NB: You can do away with the percentage Fie. Net Promoter Score is 47.5
Kwame’s NPS is an average on the Net Promoter Scale, therefore he has to work harder to inch a little further on the NPS scale. Kwame can also use his Net Promoter Score as a benchmark to determine the level of customer satisfaction amongst his competitors and within the restaurant industry.
So, your NPS is basically the percentage of promoters minus the percentage of detractors. NPS is a number that you can measure and track regularly (so you can see improvements and other tendencies), not only for a whole company but also for each business, product, store, or customer-service team; basically, with any aspect of your business that has interaction with the customer and vice versa.
You can also track NPS for specific market segments, or geographies or other functional and marketing groups/ targets. It helps everyone focus on creating more promoters and fewer detractors. This is why sometimes it is referred to as their ‘customer balance sheet’.
Some ‘facts’ to keep in mind.
- Net Promoter System® leaders on average grow at more than twice the rate of competitors”.
- Promoters account for more than 80 percent of referrals in most businesses
- Detractors account for more than 80 percent of negative word-of-mouth. They have high rates of churn and defection.
- Classic ‘Detractor Trap’ – Some detractors appear profitable from an accounting/ revenue point of view, but their criticisms and bad publicity/ word- of- mouth will diminish a company’s reputation, discourage new customers and demotivate employees.
Who is using NPS?
The brief answer is: Lots and lots and lots of companies.
Let’s just name a few -in random order- you will most definitely know:
- Multichoice & DirecTV
- Delta Airlines
- Intercontinental Hotels
- KPMG and PwC
NPS: What are the criticisms?
There are a lot of valid criticisms about NPS and to talk about it in full can be several articles…. Here are just a few in a random order. Please Google the subject if really interested at this point in time.
- Not the Most Important Customer-Satisfaction Question (maybe we should be asking something else/ something more/ or even something in a different manner)
- Cultural validity is minimal.
- NPS does not add anything to other loyalty-related questions.
- Less accurate than composite index of questions.
- Doesn’t Accurately Differentiate Promoters and Detractors
- NPS uses a scale of low predictive validity.
- Fails to predict loyalty behaviors (this can be a huge discussion).
- Performs Worse than Satisfaction & Liking Questions
(Spiros has used NPS in several companies but only in connection with other Customer Loyalty metrics).
NPS is possibly a great metric is used properly and you are very clear as to what you are measuring and how you use it. But, it is just one out of many other Customer Loyalty metrics; so maybe it could be used not just on its own.
Nonetheless, the journey to extremely high NPS values for your business requires commitment and dedication.
The first step is establishing a concrete brand promise and awareness. When that has been achieved, communicating brand promise will lie in the hands of your ‘promoters’, assuming that you have set in place an excellent customer care and support mechanism / set of processes.
Good Luck + Thank you,
Spiros and Kwaku
© 2018 Kweku Abedi & Spiros Tsaltas and © 2018 HireLoyalty