Net Promoter Score (NPS) - "The only number you need to grow”

Introduction

Net Promoter Score (NPS) is a metric that is used as a measure of customer experience (CX) and correlates with company revenue growth. The Net Promoter metric serves as a commitment tool to improve and boost the NPS, which is a measure of customer service or experience in correlation with company sales and business development. It serves as a benchmark that helps businesses to develop their customer relationship, engagement and experience. This metrics helps to check the customer strategy as well as their performance. Today, it is being used by many Fortune 1000 businesses as a growth metric. The net promoter score varies from-100 to 100, which serves as the customer's willingness to recommend a specific product to other customers. NPS needs any company to be rigorously, continuously, consistently focused on the quality of the product.

History

In 2003, Fred Reichheld of Bain & Company first presented the metric by way of his paper "One number you need to grow" in Harvard Business Review, where he discussed “By substituting a single question for the complex black box of the typical customer survey, companies can actually use the results of consumer surveys and focus employees on stimulating growth”.

How is NPS calculated?

NPS is calculated based on one survey question where customers are asked to rate on a scale of 0 to 10 ‘how likely are you to recommend this company’s product or service to a friend or a colleague?

NPS scale


The results from the survey classify customers into 3 segments:

Promoters

Customers who rate the product between 9-10, on frequent transactions stay for longer periods and they refer to other potential purchasers as value adders and thus leading to the increase of the sales and growth.

Passives

They are happy consumers, but they are unenthusiastic about endorsing the product or recommending it to others and in the long run will turn to another product with the same characteristics based on their utility. They rate between 7-8.

Detractors

Such consumers are not glad about the product and its utility and are vulnerable to negative ads and damage the business or product image. They rate between 1-6.

NPS Formula

NPS = % Promoters - % Detractors

Lowest NPS: -100 and Highest NPS: 100

When the score of all the customers is 6 or less than 6, then the NPS score is -100, and likewise it is 100, if all the customers are 9 or 10. For example, if the NPS is over 60 for a certain business, a large number of consumers would rely on the product and become frequent buyers. On the other hand, NPS is 0 means that the company must innovate further to boost service with its customers. The stronger NPS of a business shows accelerated future development, particularly by providing new potential buyers with customer references. This helps recognize growth opportunities, possible threats and required developments.

Different tools and their goals

  • Promoters: Promoters bring in new customers who become promoters so give them a platform and a mouth place to promote the business. Their goals are to increase reference customers

  • Passives: They just need a reason to promote and tell them about the improvement and regular progress updates. Their goals should be to convert 30% to promoters and quarterly communications.

  • Detractors: Target specific customers, ask them to help you improve, make them trusted advisors and show them you are listening and taking action. Their goals should be to convert 20-30% and monthly communication.

  • Non-Responders: They are just waiting for one more reason to switch to your competitors. Here the goals are to increase the survey response rate, monthly communication and personally re-commit to 25%.

How NPS works and its benefits?

NPS requires strategy and commitment by company professionals because it defines the values followed and the core economics that affect the business system. NPS works in different stages which involve strategic leadership commitment, reliable metric, feedback and improvement, employee engagement and operational and analytical infrastructure. It acts as a practical framework, unlike accounts where for short term benefits are realized at the expense of customer loyalty. Companies are encouraged to provide space for customers to provide regular feedback and suggestions about further improvement. The surveys can include three to four questions like “why” behind the ratings given and the most important part to include “likelihood to recommend” question to be answered on the scale of 0-10.  Additional questions can be added to better understand the perception of products, services, and different customer service.


NPS chart


So it’s better to measure NPS by looking for a benchmark like a competitor’s score because it helps taking industries into consideration. For example, a food chain will have higher NPS compared to a bank, because they provide more satisfaction to the customer, therefore the comparison needs to be done within similar industries. It also varies across the markets in different countries like the US and Europe have different approaches like European customers being more conservative while rating so it’s unlikely to get a score of 9 or 10. Because of these differences, NPS is more subjective in nature will ambiguities that need to be taken into account and companies should, therefore, better focus on the drivers of NPS and how to improve on a regular basis to build long term strong customer relationships.

How to implement NPS?

Mature net promoter system does more than predict loyalty, they cultivate customer-centric culture structured for customers’ needs to create frontline promoters to delivers business improvements. It creates a mature NPS system and the result can be astounding using focused driver question

The driver's question should be optimistic, it should be known that the pledge is better fluffed and it also correlates better with NPS, so that if driver questions are strongly associated with the business target NPS is strong too.

Also over time, one might find a cause and effect relationship and what is great about that the organization and its promise to the customers which matter the most to them so there is extreme value there to fulfill them. So in a nutshell it will strengthen the understanding of NPS by clarifying the promises that matter most to the customer.

Try NPS surveys in Blocksurvey under Customer Experience question component.

Example

Let’s get into NPS example in the best business to business realm if the scores of company low on NPS, the zero to six realm are not likely to recommend to their friend or family so that should pose some kind of alert for your management. Next what we do in the NPS program is that we have a recovery alert that goes directly to the manager who has the power to positively impact the customer experience. So the important thing about the recovery notices is pushing it and make sure to bring a fair solution for that customer. 

Also, make sure that the surveys conducted with a frequency for a customer base that is reoccurring to envelop the customer experience metric that is overtime should be able to let know when you are providing better customer service through the reoccurring survey.

Conclusion:

Customer and employee engagement through regular communications shows the sincere desire and ability to listen, take action and improve. The result is an engaged customer base and workforce which translates into loyalty and higher profits through lower marketing and lower attrition costs. The culture in an organization transforms into one of listening and taking action and the score focused behaviors which will be replaced with improvement in focused actions.Thus NPS has evolved beyond merely a score as it is used for strategic framework and measurements like Objectives and key results and Key Performance Indicators. It is a system of management to ensure the effective execution of strategy with a common framework language and philosophy. Here, all levels of the organization can remain focused on one objective and strive to enrich the customers. This not only inspires the team members to give their best, but it also provides a metric to help the company to know if it is meeting its goals to delight customers which is a formula for profitable growth.