What is a Net Promoter Score? And how can it be used to help businesses?
The Net Promoter Score (NPS) is a metric as developed in 1993 by Fred Reichheld, the founder of Bain & Company's Loyalty practice, as a way to predicting customer purchase and referral behaviour.
NPS is founded on an understanding that referral behaviour is often driven by the consumer's relationship with the company. The measurement acts as an indicator for customer satisfaction and, in particular, the relationship between their brand experience and advocacy based on overall interactions.
The NPS metric is based on a scale of 0-10 and asks 1 foundational question.
“On a scale of 0 to 10, how likely are you to recommend our business to a friend or colleague?”
A response of 9 or 10 will indicate a ‘Promoter” status. Whereas anything between 0-6 is a “Detractor”. Neutral responses result in a 7 and 8. Upon collecting all the customer responses, the ‘Net’ Score is derived by subtracting the percentage of detractors from the percentage of promoters. The results will indicate to the organisation whether they have more detractors than promoters, which is intended to act a guide for service level improvements to increase the Promoter/Loyalty status.
Now, it is important to note that while an organisation is able to determine the Promoter vs. Detractor response. The scale and 1 question format does not enable an organisation to understand the reason for the response. As a result, quite often companies will proceed to ask a second question following the response, which consists of free text allowing the customer to advise “why” they provided that particular response.
Using NPS as a mode of measurement provides quantitatively and qualitatively data. The quantitative data shows the number of promoters vs. detractors received, whereas qualitative data highlights the customer's subjective feelings towards the product or the services received.
Why is the NPS important?
The importance of this metric is correlated to its ability to estimate and predict a consumer's overall satisfaction and brand loyalty. Furthermore, the Net Promoter Score can be tracked over a long period of time to track changes in your brand satisfaction and loyalty, as well as act as a benchmark for competitor/industry NPS ratings.
By design, the Net Promoter Score system creates a simple, easy, and quick to follow-up program for managing relationships with customers. It provides guidance on how your organisation can make operational/product improvements by tracking customer sentiment and trialling change that influences the Net Promoter Score over time. Another benefit of implementing an NPS rating is that it encourages employee engagement, being used as a measurable KPI, frontline employees are able to actively measure performance, identify gaps in customer experience and put forward recommendations for improvement, which in turn can affect the customer’s journey and overall experience.
How to implement a NPS in your business?
NPS is often measured in the form of a two-step survey, in which the first step is a recording via a numeric scale (1-10) of customer satisfaction followed by a subjective explanation to explain the reasoning behind the customer's answers. The formula used to calculate NPS is the deduction of the percentage of detractors from the percentage of promoters. If your organisation's net result from the total sum of responses is 0-6, you are considered to have more detractors within your customer sample size. A score between 7-8 indicates passive customers, and 9-10 considers a strong customer base of promoters.
NPS can be used as a cornerstone measurement in any business due to its valuable insight related to customer experience and brand advocacy. It is important to use the NPS findings within customer service and product satisfaction considerations. This includes understanding the product’s limitations, marketing promise, as well as the customer/audience expectations to balance product and operational change to improve overall customer satisfaction, referral and NPS.
It’s important to remember that while NPS provides an indicator for overall brand referral and satisfaction - it does not provide an indication of brand trust. Additionally, unlike the Customer Satisfaction Score (CSAT) it should not be used to measure the short-term satisfaction with a product or service (i.e. directly after an engagement with a customer service rep). NPS should include a random sample, representative of your customer size. Using CSAT with NPS will help you to identify correlations between direct service satisfaction and overall brand loyalty/referral advocacy.
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