A measure of customer loyalty
Net Promoter Score and yes, businesses should use it.
NPS, Net Promoter Score, is a measure of customer loyalty. Companies use it to measure customer satisfaction with their performance, as well as with their products, services, brand, key departments, or even internally with their employees.
NPS has become very popular recently. Many public companies have started to include their NPS score in their quarterly earnings reports. Many CEOs even have parts of their compensations tied to it. But what is it really and how does it work?
The NPS question
The following NPS question is asked via email by companies to their customers:
“On a scale from 1 to 10, 10 being the best, how likely are you to recommend CompanyName to your friends or colleague?”
In some surveys, CompanyName can be replaced by Product or Service, thus switching the focus from the Company to its offerings.
Emailing best practices apply to optimize the open and completion rates of your surveys, including:
- Sending the email from a real person,
- Customizing the greeting,
- Testing and optimizing the subject,
- Respecting customers privacy, and
- Selecting time to send emails judiciously.
The phrasing of the question is intentional and powerful. Indeed, asking someone to personally recommend a company and to do so with friends or colleagues, touches how customers actually feel about their own experience with your firm.
Customers who answer 9 or 10 are considered Promoters. They typically keep buying from, or stay longer with, the company, and refer others, thus fueling revenue growth.
Customers who answer 7 or 8 are considered Passives. They are somewhat satisfied but won’t go out their way to recommend the company and are open to competitive offerings.
Finally, customers who answer 0 to 6 are considered Detractors. They will likely not remain customers very long and are likely to generate bad word-of-mouth, damaging to the company and the brand.
The Net Promoter Score
Subtracting the % of Detractors from the percentage of Promoters generates the Net Promoter Score. The Scores can therefore vary from as high as +100, where every respondent is a Promoter, as low as −100 where every respondent is a Detractor.
NPS scores vary across different industries, but a positive NPS, one that is higher than zero, is generally deemed good, a NPS of +50 excellent, and scores greater than 70 are exceptional.
Scores are not final, and the company goal should be to move most Detractors and Passives into Promoters.
Measuring NPS over time provide even more context to your analysis. For example, besides the score, you could measure completion rates or improvement with a department, a product, or a geography.
Using the NPS
Companies generally use an open-ended follow up question to the NPS question, asking “What is the primary reason for your score”, which typically provides context from the customer’s perspective. Variations to this question exist, for example “How can we improve..?”, “What do you value most…?” and many more.
Such questions add context and often action items to the score and need to be evaluated on a systematic basis by managers with authority to design and deploy or recommend change.
The replies are then typically provided to front-end employees who call back customers, engage them about their scoring, capture the feedback, so action can be taken where applicable.
By increasing their NPS score, businesses are increasing the number of brand ambassadors, improving renewal rates, and leveraging satisfied customers as new company business development advocates. Essentially, turning customers into a very effective extension of their sales forces.
It is best to send customized thank you notes to all respondents, whether they identified as Promoters, Passives, Detractors.
The original authors of the methodology were able to predict the likelihood of future purchases and of referrals based on the score in more than 75% of the industries they had surveyed. In some industries where switching barriers were high, they had also found that Passives were leaving while Detractors were staying.
A number of Software-As-A-Service solutions are available to automate this process and facilitate the reporting and escalation.
Companies running the NPS initiatives internally or using contracted resources had richer and more successful experience with their programs than those outsourcing the entire function to specialized third-party companies.
Questions, contact us.