Extensive research has proved that evangelistic Customer Loyalty is one of the most important drivers of growth in any industry. In recent times, the single and most powerful tool which is being widely used to measure customer loyalty to a company, product, service or brand is the Net Promoter Score (NPSSM). Net Promoter Score gives you a quick way to get feedback from the customers by asking the ultimate question, “How likely is it that you would recommend this company to a friend or a colleague?”
What exactly is Net Promoter Score (NPSSM)?
Net Promoter Score is precisely an index ranging from -100 to 100, used to assess to what extent a customer would recommend a certain company, product or service to others in the market. Such a quantitative customer satisfaction score can be used to make comparison over time or between different industries.
How is NPSSM calculated?
Net Promoter Scores are calculated using the answer to the single, “ultimate” question:
How likely are you to recommend company/brand/product X to a friend/colleague/relative?
The answer is sought on a 11-point rating scale, which ranges from 0 (not at all likely) to 10 (most likely). Based on their rating, customers are then classified in 3 categories:
Detractors, Passives and Promoters.
Detractors are customers who give a score between 0 to 6. They can be termed as dissatisfied customers who are not likely to purchase again from the company and moreover might spread a negative word of mouth about the company.
Passives give a score of either 7 or 8. Their satisfaction level is quite neutral, they probably won’t spread a negative word of mouth but they are not enthusiastic about your products or services either.
Promoters are highly satisfied customers who rate the company 9 or 10. They are loyal enthusiasts who will not only keep on buying its products but also refer the same to others, boosting growth and revenue.
The Net Promoter Score is calculated as the difference between the percentage of Promoters and Detractors. The value of NPSSM is not expressed as a percentage but an absolute number that lies between -100 and 100. If in a survey 100 responses are received and all of them give a score less than or equal to 6, then this would lead to a NPSSM of -100. On the other hand, if all of the customers rated the company with highest scores of 9 or 10, then it would an NPSSM of 100. In order to improve NPSSM, a company should strive to convert detractors or passives into promoters. If promoters are more than the detractors, the score would be positive and vice versa.
Importance of Net Promoter Score
NPSSM serves as an unambiguous and straightforward parameter for the organization to gauge customer satisfaction. Finding out Net Promoter Score is the easiest way to see how your company is doing in the eyes of your customers. The reason behind its popularity is its simplicity. It is based on a single question and an absolute number.
NPSSM supporters claim that focusing on a single metric-that is visible and easy to understand-makes it easier to motivate the entire company to be customer-focused. Higher score indicates more loyal customers, which leads to increased revenue and higher profits. An NPSSM score makes it easy to set both internal performance benchmarks as well as external benchmarks to compare against competitors in the industry. This score can be used as a motivation for employees to improve and provide the best customer experience possible.
Net Promoter Score Economics
Lets get an insight into the rationale behind using net promoter score to gauge a company’s potential for success. From cost point of view, it makes sense for a company to focus and retain promoters on board than to make efforts to win back the detractors. Detractors, being dissatisfied customers, can do negative publicity against the company’s products or services. Moreover, they will need more time and resources from the company to be served. On the other hand, Promoters, who have eventually loved the company, contribute a great deal towards improving the company’s profit potential. They will not only buy more from the company but will also refer it to their friends and relatives and will also require less customer service. The free marketing done by the promoters dramatically influences business growth. Fred Reichheld once said, “Essentially promoters become the company’s marketing department”.
It is found that “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.”
Bain and Co, who originally introduced this concept, have come out with some interesting facts about the metric which are as follows –
1. Net Promoter score accounts for 20% to 60% of a company’s organic growth rate.
2. On an average, the leader in an industry has a Net Promoter score more than double of its competitors.
How can Net Promoter Score be used for the growth of the company?
Through NPSSM score, an organization can measure customer loyalty but in order to gain any longstanding value through it, the entire organization needs to adopt a deep sense of commitment towards ensuring high customer satisfaction.
First of all, the top level management needs to ensure that addressing and enriching customer experience becomes a company-wide effort. Better coordination and accountability among different segments of the company like marketing, sales, advertising or operations can lead to better results in terms of customer satisfaction.
Secondly, people of the organization need to act upon the valuable insight provided by customer surveys adequately and effectively. There should be a culture of making continuous improvements in the system using information obtained by NPSSM. Hence, the NPSSM ecosystem should have a closed loop.
Third and most important aspect is the proper analysis of this metrics. The root cause behind the quantum of detractors and their experiences need to be clearly figured out so that timely and effective steps could be taken to correct certain loopholes and probably turn simple customers into promoters. A company can make a difference by reading all the comments of the customers, tagging them, classifying them and then looking for patterns. It is paramount for a company’s leadership to seek out the “whys” behind the data and to adapt and evolve accordingly.
The magic of NPSSM is not in a number, but in understanding the whys behind the score.
Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.