Net Promoter Score (NPS) & The Customer Experience
In 2003, Fred Reichheld, a partner at Bain & Company, created a new way of measuring how well a brand or an organization treats the people it interacts with—how well it generates relationships worthy of loyalty.
Extensive research has shown that your Net Promoter Score®, or NPS®, acts as a leading indicator of growth. If your organization’s NPS is higher than your competitors, you will likely outperform the industry/market, and managing your retail organization to improve NPS will also improve your business performance. Retail organizations that use NPS as the foundation of a measurement framework that is tightly tied to the customer experience can determine where they stand in the market quickly and frequently.
How Is The Net Promoter Score Calculated?
NPS is gauged by asking one single question, using a scale of 1-10 as a response. The question is – “How likely is it that you would recommend us to a friend?” The customer then answers between 0 [Not at all likely] and 10 [Extremely likely]. Asking this one question allows companies to track their brand’s promoters and detractors, producing a clear measure of an organization’s performance from it’s customers point-of-view [aka, the Customer Experience], its Net Promoter Score.
Respondents are categorized as follows:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth [This means that we exceeded the customer experience expectation for these people.]
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings. [This means we did just “good enough”. We did not “wow” the customer – we didn’t “disappoint” the customer.]
- Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth. [This means we failed to deliver a meaningful or enjoyable customer experience.]
Here is an example of how the NPS is caluculated: 100 promoters and 30 passive and 80 detractors gets you a Net Promoter Score (NPS) of 9.5% (20 divided by 210). This means there are 9.5% more promoters than detractors. A NPS of -10% means you have 10% more detractors than promoters.
Bain analysis shows that “sustained value creators” — or companies that achieve long-term profitable growth—have Net Promoter Scores (NPS) 2x higher than the average company.
Most companies that focus on NPS gather feedback from their customers in three different ways:
- Competitive benchmark. Finally, leading practitioners of the Net Promoter System sample all target customers for their products or services. They seek feedback not only from their own customers but also from their competitors’ customers. Competitive benchmark Net Promoter Scores provide an objective and fair basis for comparing your company’s feedback to the feedback your competitors earn. Done right, they can provide the basis for goal setting and prioritization at the highest levels of a company.
- Relationship. Net Promoter System companies regularly contact a sample of their own customers, asking them how likely they would be to recommend the company to friends or colleagues, and why. Feedback like this provides an overall assessment of the relationship between company and customer. It provides input to leadership teams, relationship managers and others so they can make decisions and take actions to improve selling, servicing, product assortment, pricing or other policies, based on what they learn.
- Experience. Net Promoter System practitioners ask for feedback from their own customers after selected experiences, transactions or interactions. For example, they might do so after the purchase of a product or an interaction over the phone. This type of feedback focuses on understanding how customers’ experiences at those moments influenced their overall loyalty so you can figure out ways to improve those experiences. [Source: Net Promoter System]
The Benefits Of Using A Net Promoter Score System
According to Jeff Sauro, founding principal of MeasuringU, a company providing statistics and usability consulting to companies, here are a couple benefits of the NPS system:
- The Net Promoter Score is appealing because of its simplicity (easy to score and a single question) and it’s expressed as a percentage which can be more digestible to executives and non-math types than interpreting a mean (e.g. 70% Net Promoters vs 7.9 out of 10). It can be confusing to have a negative percentage and some companies prefer to just call it a “score” and not percentage for this reason.
- The main advantage of the Net Promoter Score is that it gets companies thinking about metrics that come from the customer. Yes, revenue is the ultimate metric but revenue is both a lagging indicator and not necessarily a good indicator of future growth–especially when you’re pissing off customers to get short term revenue (think of the latest fee from your phone company, cable company or rental-car company). What’s more, you can’t do anything about last quarter’s numbers. If you have a reasonable proxy for measuring future growth and revenue then you might be able to improve next year’s revenue. In the processes you also will likely make your customers happier and more loyal.
NPS is one of many tools [Secret Shops, Customer Surveys, etc.] available to retail organizations to determine customer experience and how we delivered on our brand promise.