Marketing

Net promoter score

The net promoter score is a way of measuring how likely customers are to recommend a company’s products or services to others

The net promoter score is a metric for determining how likely customers are to recommend a business's products or services to others. It has become quite popular as a proxy measure of customer happiness and loyalty due to its ease of use.

When to use it

● To evaluate and reward personnel who achieve high levels of customer satisfaction.
● To measure customer satisfaction in a clear and reliable way.
● To track changes in customer satisfaction over time.

Origins

Customer satisfaction has long been recognized as a valuable indicator of success, since satisfied consumers are more likely to purchase your products again, and they also assist to boost the value of your brand by sharing their friends and colleagues about their great experiences.

Fred Reichheld, a partner at the consulting firm Bain & Company, created a formal technique for assessing customer satisfaction reliably and consistently over time based on three important ideas. The concept was simple to implement and rapidly became popular due to its concentration on a single statistic, the net promoter score.

The results of Reichheld's research were published in a series of books, including The Loyalty Effect and The Ultimate Question. The net promoter score is now the most extensively utilized metric for determining customer happiness and loyalty.

What it is

The net promoter score (NPS) is based on the concept that customers can be classified into three groups: promoters, passives, and critics. Promoters are so enthusiastic about your product that they tell their friends about it. Detractors, on the other hand, speak negatively about it. Passives are unconcerned in any case.

The net promoter score just asks one question: "How likely are you to suggest company X to a friend or colleague?" Customers are categorized based on their responses on a 0–10 point scale:

● Those that answered 9 or 10 out of ten are promoters; they are devoted and enthusiastic, and they help spread the word about the company and its products to others.
● Passives are those who answer 7 or 8 out of 10 - they are pleased and will continue to buy the product or service in issue, but they lack excitement and may be vulnerable to competing offers.
● Those who answered 6 or less are detractors, meaning they are enough dissatisfied with the company or its products to communicate their negative feelings with others.

The net promoter score is computed by subtracting the percentage of promoters from the number of critics, and leaving out the data on passives. A score of +10%, for example, indicates that you have ten percent more promoters than detractors. This is a useful indicator of your present consumer base's overall contentment.

It is self-evident why this calculation is correct. Negative emotion can be disseminated by detractors, whereas positive sentiment can be spread by promoters. People who are most (or least) excited about your items have disproportionate power over others in today's society, when social media helps to distribute individuals' ideas worldwide.

How to use it

Many companies employ the net promoter score with great rigor, hiring a consultancy to sample consumers in a non-biased manner, ask them the question, and follow the results over time. This methodology can be used at the corporate level or at the level of a single operating unit. A hotel chain, for example, might sample its clients and then segment the findings based on which hotel they stayed at most recently.You can tell whether a company is heading in the correct direction or not by following the number over time. According to Fred Reichheld's research, the NPS is a solid measure of total customer loyalty, as well as the company's long-term performance.

The net promoter score can also be used in a more informal setting. Because the question is so straightforward, it may easily be incorporated into any existing customer survey. The net score can then be calculated using a simple formula.

For example, if there were 300 customers in the survey and 185 promoters, 105 passives, and 10 detractors based on the response to the question, the NPS score would be (185/300) divided by (10/300) = 18.5. Positive NPS scores are considered good, and NPS scores more than 50 are considered excellent. For example, Apple's iPad had an NPS of 69 in 2013.

The net promoter score is used in a variety of ways by businesses. For starters, it's a theoretically simple and straightforward measure that can be discussed with front-line workers. It can also be used as a motivator to motivate personnel to develop and give the best possible customer service.

Top practical tip

Net promoter programs aren't the same as typical customer satisfaction programs, and merely calculating your NPS won't get you anywhere. To take the NPS approach seriously, you must ensure that it is integrated in your company's processes, that leaders routinely discuss it, and that you have the required follow-up systems in place to guarantee that you understand how to fix a negative score and maintain a favorable one.

Top pitfall

While it may be tempting to utilize the net promoter score because it appears to be so simple, many businesses have struggled to execute it effectively. There are various traps to avoid.

One option is to use it on the fly. A single metric, say +5%, does not provide much information. What important is how this stacks up against your competition or against the previous quarter. As a result, a methodical approach is essential. A related problem is obtaining a skewed sample. It's much simpler to discover happy customers than angry ones, so if your customer sample approach is shaky, the findings could be skewed, which is bad for no one.

A third danger is to use the NPS as a performance management tool instead of a monitoring tool. If you start evaluating your salespeople based on their NPS score, you risk their focusing solely on that number rather than actually doing the correct thing. Salespeople have been known to deliberately request a 9 or 10 rating (out of 10) from their customers since their bonus was contingent on it. If the NPS becomes too significant, it can be manipulated, just like any other performance statistic.