NPS is a well-known market research tool that asks people whether they’d be likely to recommend something to their friends or colleagues. The NPS is an instrument developed by Fred Reichhold, who owns the registered name “NPS” in conjunction with Bain & Co. and Satmetrix. It has become popular because of its simplicity and transparency.
What is NPS?
Net Promoter Score (NPS) is a simple metric company use to measure customer loyalty. NPS measures how likely customers are to recommend a company to others based on their experience with that company. Companies use NPS scores to understand what drives customer satisfaction and loyalty.
The NPS score is calculated using three questions:
Answering “very unlikely,” “unlikely,” “neutral,” “likely,” and “very likely” respectively results in a score of -10, 0, +5, +10, and +20.
The primary objective of the Net Promoter Score (NPS) is to infer customer loyalty to a product, service, or brand based on respondents’ responses to a single question.
As it represents a response to one survey question, the validity and reliability of any company’s Net Promoter Score (NPS) depend on collecting significant ratings from individual humans. However, market research studies are usually distributed via e-mail, and response rates to these surveys have declined steadily in recent years. In light of criticisms of the Net Promoter Score (NPS), proponents of the NPS argue that the “Recommend” question is just as practical as any other metric but presents several practical benefits to more complicated metrics.
Beyond the Number, the Meaning of Net Promoter Score
Customers are categorized into three groups depending on their answers to the standard “How likely are you to recommend our company/product/service?” question: promoters, detractors, and passives.
Promoters (scores of 9 and 10) represent a company’s most enthusiastic and loyal customers: these people are likely to act as brand ambassadors, enhance a brand’s reputation, and increase referral flows, helping fuel the company’s growth.
- Detractors (score of 0 to 6, included) are unlikely to recommend a company or product to others, won’t stick around or repeat purchases, and—worse—could actively discourage potential customers from a business.
- Passives (scores of 7 or 8) are not actively recommending a brand but are unlikely to damage it with negative word of mouth.
- Passives are very similar to promoters in their impact on the Net Promoter Score. It always makes strategic sense to invest time into winning them over.
Why is NPS important?
It can be used as a prediction tool for business growth. Suppose your customer satisfaction score is higher than the industry average. In that case, you know that you have an excellent relationship with your customers, and they will likely be loyal to your brand. They’re also expected to spread the good news about your business and help drive sales.
It’s important to understand that just because something has an NPS score doesn’t mean it’s good for business. A score of 0 means neither promoters nor detractors exist. Scores range from +100 to -100, where +100 indicates more supporters than detractors, and -100 indicates more detractors than promoters.
NPS measures the likelihood that an individual will take action based on previous experiences. However, it is a reliable predictor of future business growth or decline. It means that it helps you see trouble before it happens so that you can take action to avoid it.
You might not always get high response rates from each NPS survey you send. But over time, you’ll start seeing patterns in the results. If you’re lucky enough to get a lot of responses from people who answered your questions correctly, use them as benchmarks for what to change if you run another survey. After understanding how NPS changes over time, you can look into what factors might have contributed to it.
In practical terms, the Net Promoter Score is – and, therefore, necessary :
- A measure of Customer satisfaction
- A step of Customers fuelling positive word of mouth about your services
- A predictor of Customers’ Loyalty
- A predictor of business growth
- A measure of alignment between strategic levers and their executions
The bottom line is that NPS drives future growth.
Why NPS is not Sufficient
The NPS is a great measure and can be necessary leverage to fuel the growth of any organization. It has some limitations:
- NPS is an inside-out look at the market, which does not consider the competitive landscape or environmental changes.
- It also says nothing about the acquisition funnel or the brand’s equity: it focuses solely on retention.
- It also focuses only on the efficiency mechanism of the strategy/execution passages; in this sense, it validates the strategy, which might be failing the company overall.
Net Promoter Score (NPS) is a simple measure of how likely customers are to recommend your business to others. NPS measures customer loyalty by asking customers if they would recommend your company to other people. If you score above 70%, you’re doing well.
In a nutshell, it
- gives us a snapshot of what our customers think of the brand;
- signals where we need to improve and whether those marketing efforts are worth the effort.
What the NPS is not: a one-measure dashboard on your brand’s health. Companies that rely only on NPS risk focusing on their operational model without looking at competitive and customer-driven landscape shifts.