Net Promoter Score Definition
It’s been 15 months, since the moment we adopted Net Promoter Score, as a customer loyalty performance measure. As an extension of a fundamental KPI toolkit, consisting of user acquisition, engagement, NPS became a superb additional tool to help figure out customer loyalty and in fact a practical data source for improving the product experience.
We wanted to share our experience after implementing an NPS program.
NPS is an indicator of customer’s loyalty, Fred Reichhelt, famous for his research and articles on Customer Loyalty models at Bain & Company, came up with the idea that rather than dealing with lengthy customer satisfaction surveys, it is much more useful to ask them a straightforward question. This idea proved itself by showing a close relationship between NPS and business growth.
Net Promoter Score Calculation
NPS is actually easy to calculate and is build on a basic question – “How likely would you recommend our company to your family/friends?”
Give them the opportunity to respond in a range of 0-10 and organize the results according to this scheme:
The NPS formula is simple as well – simply subtract the number of Detractors from the number of Promoters.
Depending on the number of correspondents NPS score ranges between -1000 and +1000. If you score 0 – you did OK, if more – you did great.
Net Promoter Score from an economics standpoint
There is a clear indication of a possible future of a company displayed in the balance of Promoters and Detractors. First of all, it simply takes much more money to transform a Detractor back to at least a Passive as opposed to putting more effort to keep a Promoter happy. A Detractor will make a lot of bad noise, will stay on a customer service line for hours and will drain physical and mental resources from your teams. The fact they won’t buy from in the future is the least of the problems since there is a chance of them running bad mouth and cause damage to your brand’s reputation.
Promoters, on the other hand, will buy more, require less consumer service and will give your brand free publicity and will save big time on marketing spends. As we earlier wrote in our “Customer Experience vs Customer Service” blog:
“Promoters become your best marketing team”
Temkin Group conducted a survey on 12,000 Northern Americas consumers in 2017. According to it the Promoters are 5 times more likely to make a repeated purchase and are two times more likely to promote a brand to their peers than detractors.
Fred Reichhelt, the founder of the NPS metric, found a correlation between NPS and a Future Purchase Intentions. He noticed that for almost every surveyed industry the NPS is responsible for 20% to 55% of a brands growth rate. In other words, it means that at some industries a leader has an NPS score 2 times higher than its competitors.
Net Promoter Score relates to Growth
There is a clear relationship between companies natural growth and its NPS.
To discover this relationship, Bain & Company conducted a Net Promoter Score survey using the exact same sampling procedure and methodology for a group of competing companies. The results were later layered with the companies natural growth. In most industries, NPS could explain ~30% difference in organic growth between contestants.
As you can see from the chart above, Net Promoter Score is a great gauge of growth, but the connection is much more visible in certain industries, especially if;
- The industry is full of competing players, so customers have a wide array of options
- Customers can quickly shift vendors
- The industry is well-seasoned and its products and services are diffused on markets
If you don’t meet these circumstances, the Growth-NPT link may be inconsistent.
“Customer loyalty, that is achieved with high NPS scores isn’t the only condition of growth. However, long-term organic growth cannot succeed without it.”
Large chains can flood the markets with huge price drops and open dozens of new shops. If the competition is weak, they can dominate the markets even with terrible NPS. Investments in consumer-friendly technology can bring short-term spikes of growth as well.
A great example of it is HomeBanc Mortgage. Until the financial crisis of 2007 it lead the NPS rating among mortgage banks but still had to proclaim bankruptcy, just as a majority of its competition.
“High NPS should not be the main goal by itself since it doesn’t automatically ensure success. It simply measures the quality of the ongoing customer relationship, which is great but isn’t enough to guarantee an effective organic growth.”
Net Promoter Score question
Asking a generic “How likely are You going to recommend us to your peers” will give you just a score of your past performance. A great practice is to also ask:
“What’s the reason you gave us this score?”
It will also ensure you transform a simple performance measure into a clear instruction for improvement.
Another great practice is to ask your customers to rate your competitor’s product or service, This way you can compare your NPS to other players. However, this score might be biased since corresponds are your own customers. A random selection of potential customers would result in a more neutral opinion.
Other NPS questions that might point on what’s wrong at your company are:
- Please share your bad experiences with us, if you had any
- Did your bad experience occur in a particular location (store, restaurant etc.) or is it a general feeling
- How can we make our service better?
- What exactly should we improve
Net Promoter Score Sample Selection
It’s extremely important to pick random customer groups while surveying. There are cases in which it’s not as easy to achieve as it sounds, so it’s extremely important to control this process because of a strong relationship between NPS and the selected engagement groups. Therefore you should make sure that the sampling is equally spread across the whole spectrum of your user base.
How often should you survey?
When considering the frequency of NPS surveying there are several factors.
The biggest one is the dimensions of your user base. The smaller it is, the higher response rate needs to be achieved. To achieve this conduct major surveys and giving a longer response time to receive all potential results. This limits the frequency of your future surveys.
The second factor depends on your product development cycle. Your next survey should start before you make certain enhancements based on the previous survey results. Keep in mind that there is a noticeable lag between an improvement and the moment your customer can appreciate it and transform it into a better score. For example, Linkedin found that conducting Net Promoter Score quarterly if best for them, since their product development cycle is aligned this way. This way they have the fresh score before rushing into planning the future development.
An interesting fact is that NPS results may be affected by seasonal changes. While those changes aren’t peculiar to every industry, it is a good practice to compare year-by-year changes rather than quarterly or semestral.
Who should analyze the NPS results?
If you implemented NPS to bring delight to your customers it is critical for you to have the key people from the Product Development engaged in an NPS analysis team.
In another case, it is very hard to push meaningful changes to the product development team. If we’re talking big companies this means teaming up with the Product Managers, Marketing and Business Operations. Make sure that the correct stakeholders are engaged right from the inception.
Net Promoter Score Translation
The hardest part of the NPS surveying is a translation of the remarks left by the customers. Start each survey by analyzing your promoter remarks and structuring them into groups. Repeat the same process for detractors as well. Create the groups after you finish reading the comments and have a general idea of how to group them.
This categorization process should become the foundation for your instructions to precisely point at the Detractor’s pains and take them over to Passives or even to Promoters.
Of course, it is exhausting to read every single customer remark, but there simply is no better way to dig into your customers head than listening to the exact way they interact with your product.
Most of the time companies apply effort in studying the Detractors and how to approach their issues. However, we found out that it is equally useful to look at your Promoters NPS results and figure out what made their experiences great. Find this “special moment,” the moment when your customers are fascinated with your product or service. It means that you can now start optimizing it to introduce more customers to that point.
You should treat NPS as simply as a tool for learning how your customers perceive your product strategy execution and can help you achieve your defined goals.
Although NPS is a great measure of customer loyalty and can give actionable insights for it to grow, it does have its limitations.
- Conduct it simultaneously with other day-to-day metrics like customer acquisition and engagement, due to low-frequency surveying cycles.
- The results have a strong dependency on the size of the sampled audience, so don’t rush making product changes if it’s small, use other metrics instead.
Thanks for reading!