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Net Promoter Score

Net Promoter Score

Net Promoter Score

Use this framework to build customer loyalty

The Net Promoter Score (NPS) has found appeal because, according to its inventor, Fred Reichheld of Bain & Company, it is the "One Number You Need To Grow". This was also the title of an article by Reichheld in Harvard Business Review in 2003. The “one question” concept is appealing to senior managers of companies who may find the traditional plethora of customer satisfaction questions confusing and too much detail.

The Net Promoter Score (NPS) is a measure of customer satisfaction and loyalty and is used to determine how likely customers are to recommend and promote a company. The score is based on answers to the following question:

How likely are you to recommend brand X to a colleague using a scale from 0 to 10 where zero means not at all likely and ten means very likely?

It is argued that a “likelihood to recommend” score equates with loyalty. The NPS is computed by taking the percentage of people who give a score of 9 or 10 out of 10 (called promoters) and subtracting the percentage of people who give a score of 6 or below (detractors).  Those giving a score of 7 or 8 are ignored in the calculation (passives).

A high NPS correlates strongly with loyalty and future growth. Tracking the NPS is important to determine trends in loyalty. Promoters are advocates of a company and become a company’s best salesperson.

In business to business markets the average NPS is between 20 and 25. The following scores are reasonable benchmarks:

  • Less than 20: Utility companies, monopolists, chemical companies, commodity suppliers, most Western airlines.

  • 20 to 30: Manufacturing companies of all types, large corporates.

  • 30+: Service companies and companies with a high service content in their offer, high-tech companies, professional services companies, small and medium-size companies, good merchants and distributors.

For many companies the best way of improving a NPS is to work hard to increase the “likelihood to recommend score” amongst those giving a score of 7 or 8 out of 10. If a company or brand has more than 20% giving a score of 6 or below, there is something seriously wrong with the offer or the offer is being targeted at the wrong segment.

Companies and brands achieving high NPS scores (50+) always have an excellent product. They are also likely to excel at one or more of the following:

  • A strong brand that delivers against its promise.

  • Good relationships with customers through frequent contact and with staff who are friendly and empowered.

  • Responds quickly to requests.

  • Is easy to do business with.

The appeal of the Net Promoter Score is its simplicity. As the name of the tool suggests, it delivers a metric on the net number of people who are advocates of a brand or company. Many large consumer brands have integrated the NPS into their customer loyalty programmes.  It is often used in employee research to establish staff loyalty to the company where they work.

Despite its popularity amongst large corporates, research by Hayes (2008), The True Test of Loyalty, suggests that the "likelihood to recommend" question is no better a  predictor of growth than other customer loyalty questions such as “How satisfied are you with Brand X?” or “How likely are you to buy Brand X again?”.

A weakness of the tool is where there are only a limited number of respondents. In many business to business markets it may only be possible to obtain 100 completed surveys on the NPS question from customers. If the majority of the responses give a score of 7 or 8 out of 10, the Net Promoter Score will be calculated from a small base of promoters and detractors. This makes the score volatile as it is tracked over time. The movement of just one or two customers in and out of the promoter and detractors categories will cause the NPS metric to change drastically. It is an unreliable score when sample sizes are small.

It is best to assume that there is no single question that can be used to monitor customer loyalty and satisfaction.  NPS is certainly a useful measure enabling changes to be tracked over time. More questions should be asked to get a true understanding of customer loyalty and to find out what is driving a high or low score. A question that asks “How likely would you be to re-purchase a product from this company?” may be just as good a measure of loyalty. So too many companies like to ask a company effort score because they know that ease of doing business is a key driver of satisfaction and loyalty - “How much effort is required to do business with this company?”. 

Customer loyalty comes from the complex relationship with the product, service, price and channel and it cannot be fully understood by one question. 

Some things to think about:

  • There is an enormous interest in building customer loyalty and for good reason. Once the expense of finding a new customer has been met, it makes complete sense to keep them for as long as possible. The Net Promoter Score is a simple metric that correlates strongly with customer loyalty.

  • The Net Promoter Score is best used when there is a sample of at least 50 and ideally 100 responses. This is because many people give scores of 7 or 8 out of 10 which means that the NPS score is calculated on a low sample size (the percentage of promoters minus the percentage of detractors) and can fluctuate wildly when tracked.

  • It may also be worth considering asking other questions that drive loyalty such as overall satisfaction, satisfaction with different parts of the company’s offer, and likelihood to repurchase. All these questions will benefit from a supplementary question which asks “Why did you say that?”.

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