So you know that guy, Frederick Reichheld? From the global management consulting firm Bain & Company? No? Well, we didn’t either up until 2003 when he introduced a new metric to measure customer loyalty.
Since then, the range of key brands who have been using it has become quite impressive (Apple, Porsche, Sony, eBay… a more extensive list is available here).
What is a Net Promoter Score?
Since the dawn of time, brands could sense a strong correlation between customer loyalty and business profits. They were investing tonnes of cash into complex satisfaction surveys to understand customer behaviours and improve services based on the results.
Then one day Andy Taylor, the former CEO of Enterprise Rent-A-Car, said: ‘Hey, why don’t we streamline things and ask customers two simple questions instead?’
First one was about the quality of their rental experience and the second about the likelihood that a customer would rent from their company again.
Frederick Reichheld thought about this and decided to investigate the approach too.
After two years of research (which you can read about in detail in Harvard Business Review) he found out that one single question can assess customer’s loyalty and serve as a predictor of growth.
Why was his approach more reliable than others? Reichheld went a step further than majority of satisfaction surveys and matched customer’s responses with their actual purchase behaviour.
Right. So what’s that one golden question and how do you interpret the answers?
Calculating Net Promoter Score
Start with asking customers the following:
On a scale of 0 to 10, how likely is it that you would recommend our brand to a friend or colleague?
Once you get the results, divide them into these 3 groups:
- Promoters: those who answered 9 or 10. They keep coming back and promote you to others. They are the ones fuelling growth.
- Passives*: they answered 7 or 8. They are satisfied to a certain extent, but not enthusiastic enough to refer others.
- Detractors: they scored between 0 and 6. They are not really satisfied with your offerings and could potentially damage your brand through negative word-of-mouth.
Now take the percentage of customers who are detractors and subtract it from the percentage of those who are promoters. Voila! The number you’re left with (between -100 and 100) is your Net Promoter Score (NPS). The closer to -100, the more detractors you have and the closer to 100… well, you get the gist.
NPS (Net Promoter Score) = % promoters – % detractors**
* Reichheld decided that only the first and the last group actually matter.
** Although calculated as the difference between the percentages of these two, NPS is expressed as an absolute number.
But why should you care?
If you want to excel at customer service, you have to understand what makes your clients tick and how they feel about your brand. Applying simple metrics can be a good start, although it won’t provide you with a full picture.
These two scores (often determined by a single question as well) are also available to your brand:
- CES (Customer Effect Score) – measures how much effort a customer has to make when using your services
- CSAT (Customer Satisfaction Score) – measures customer satisfaction with received service
While all 3 metrics help understand customer’s sentiment, the Net Promoter Score is claimed to be the only one strongly correlated to company’s profit increase.
In fact, a study by LSE back in 2005 proves that word of mouth advocacy drives growth. They found that a seven-point increase in NPS correlated with 1% increase in growth (which for some companies meant nearly £63 million surge in sales in one year).
Now we got your attention, huh?
NPS is very much about measuring the real-time performance and sharing customer’s feedback with teams in a quick and simple way. It helps identify and value promoters, but also gives a chance to make amends with detractors.
Will trying to satisfy detractors not be a waste of time though? Haters gonna hate, hate, hate… I hear you say.
Not necessarily. The Temkin Group closely examined NPS metric concluding:
“Compared to detractors, promoters are almost six times as likely to forgive, are more than five times as likely to repurchase, and are more than twice as likely as detractors to actually recommend a company.”
While understanding what drives promoters is essential, investing time and resources into winning detractors back can bring blooming results.
Is your NPS good?
The answer depends on an industry you are in. As Bain & Company claims, the metric is more relevant to mature industries with a substantial number of players, when customers have a real choice.
Temkin Group’s benchmark survey from last year gives you a good idea of average numbers across industries. Or you can type brand’s name and spy on their NPS here.
Who does NPS well?
We help lots of brands collect NPS (along with a bunch of other feedback and user-generated content). One brand that ‘gets it’ particularly well is British Airways Holidays.
BA Holidays uses its NPS data along with feedback from other sources to build a holistic view of its customer relationship.
‘NPS is important to us as it’s a single metric that’s comparable across many organisations that tells us how we measure up in the eyes of the customer. Used in conjunction with more qualitative feedback, we can delve into the levers that are driving satisfaction or otherwise and use to take action. Then we return to the NPS measure to see how effective that action has been.’
– Catherine Onions, Head of Customer Service and Quality, British Airways Holidays
Is NPS really the one number to grow for your company? Uhm…
There are probably better ways to collect feedback. And there are definitely more interesting ways to display the voice of the customer. But as a benchmark, there’s no denying that you should be collecting an NPS score as part of your UGC and feedback strategies. Just don’t rely on it alone.
At Reevoo, we help our clients collect Net Promoter Scores. We find that brands use it for two main reasons:
- Reporting general customer sentiment at board level (along with the rest of the data we provide them)
- And benchmarking between branches and against competitors.
The truth is, NPS alone doesn’t mean anything unless you apply further layers and actually do something with it. It’s great to know your detractors from promoters, but you need to understand WHYS behind results and act upon them.
Consider adding additional qualitative research and look at the metric through the prism of an overall experience with the company, not just individual encounters. Collect your NPS data while you collect other data.
You can use feedback and UGC to work on making experiences easier, prevent problems at source, ensure consistency across communication channels and increase employee engagement.
NPS is just part of that.