This article explains the concept of the Net Promotor Score / NPS, developed by Fred Reichheld in a practical way. After reading it, you will understand the basics of this useful marketing strategy tool.
What is a Net Promotor Score / NPS?
The American management book author Fred Reichheld designed the Net Promotor Score (NPS) in 2003. He wrote an article about it in the Harvard Business Review. He developed the method on behalf of the Bain & Company consultancy in partnership with Satmetrix. It became more widely known following the publication of Reichheld’s book, ‘The Ultimate Question’.
The goal of NPS is to measure customer loyalty, providing an alternative to measuring customer satisfaction. The NPS score has a huge variable margin, from negative 100 to positive 100. In general, a score above 0 is considered good, and a score over 50 is considered excellent. NPS is the foundation of a solid customer relations strategy. It’s a simple method that can easily be applied throughout an organisation. Employees at all levels can understand the NPS, which stimulates them to make an extra effort, become more customer focused, and improve their performance.
In many cases, determining customer loyalty is a time-consuming and expensive process. It requires a specific consumer group to answer several questions. All the answers have to be collected and analysed to get the most accurate result possible. NPS, on the other hand, is an easier method of prediction. It’s not just easy to do, it’s also a powerful tool to discover whether customers are loyal to their supplier. Asking one simple question is enough to make clear what customers think of the supplier and its product. This so-called ultimate question goes as follows:
‘How likely is it that you would recommend our company and its products/services to a friend or colleague?’
Calculate the Net Promotor Score / NPS
NPS measures customer loyalty and, as was mentioned earlier, is an alternative to measuring customer satisfaction. Both customer loyalty and customer satisfaction are important foundations for a company’s potential market share. That market share is then divided into different components, including the number of first-time buyers of a product (market penetration), repeat purchases, and use intensity. Customer loyalty and customer satisfaction play particularly important roles when it comes to repeat purchases. As such, it’s invaluable to companies to find out what customers think about their product and/or service, and if they’re able to recommend it to friends or colleagues.
Respondents can answer the ultimate question by awarding a mark between 0 and 10. The NPS is then calculated by deducting the percentage of promoters from the percentage of detractors. These groups are explained in more detail below. This way, a single number can indicate how an organisation is performing and what its customer loyalty potential is, including the associated revenue growth. According to Reichheld, an NPS between 50% and 80% is a very good score for a business. Generally speaking, companies achieve an NPS score of between 5% and 10%.
NPS assumes organisations can divide their customers into three groups. Each group is asked the ultimate question, and they then fill in a score on the scale. ‘0’ means ‘not likely at all’ and ’10’ means ‘definitely very likely’; the scores in between are self-evident. It’s also a good idea to consider the NPS score with the industry in mind. For instance, consumers are less satisfied about abstract sectors such as the energy sector than about supermarkets. This leads to the following distinction:
They are an organisation’s ambassadors. They have given a score of 9 or 10 on the scale and are fans of the company and its products and/or services. They don’t only come back to make repeat purchases; they also recommend the products/services to others, resulting in additional growth.
These are so-called inactive or neutral customers that give a score between 7 and 9. These customers are satisfied, but not always particularly enthusiastic. If a competitor has an attractive offer, they’re likely to go for this. This means these customers are less loyal and therefore less likely to recommend the company and its products/services to others.
This is a group of critics according to Reichheld, having given a score between 0 and 6 on the scale. They’re not completely satisfied or have had a bad experience with the company and its product and/or service. The lower the score they give, the more likely it is that they may cause serious damage to a company’s image through negative word-of-mouth.
Criticism on NPS
NPS is very popular among companies and is frequently used to measure customer loyalty. However, the method has never been scientifically supported and is regarded critically from that perspective. Compared to other methods for measuring customer loyalty, NPS adds very little. It’s said that there is no proven causal relationship, and that NPS doesn’t meet the requirements for statistical proof and other concerns. Nor is there any proof that the ‘recommendation question’ that NPS uses can predict a company’s revenue growth. It’s unclear how loyal customers will behave in the future. It doesn’t provide enough information to determine customer loyalty, solely by a customer’s intention to recommend a company to friends and colleagues. Multiple factors and indicators would have to be investigated to gain sufficient information for this. It’s not a good idea to work with no more than a single score. An average of a number of scores is a more powerful scientific tool.
The way in which the NPS result is calculated also receives criticism. ‘Detractors’ award a score of between 0 and 6, even though a 5.5 or 6 out of 10 are generally considered a passing mark. A 0 feels like a very different score than a 6. In addition, they are divided over 6 different scores, while ‘promoters’ only get 2 and ‘passives’ 3. This means there isn’t a fair balance between these three groups of customers, which may distort the NPS’ results. Nor does it make a difference whether there are 50% ‘promoters’ and 20% ‘detractors’ or 30% ‘promoters’ and 0% ‘detractors’. Both have an outcome of an NPS of 30. This doesn’t make clear whether the ‘promoters’ carry more or less weight than the ‘detractors’. NPS can remain successful if changes are made to divisions, ratios, and calculations, along with a solid scientific foundation.
It’s Your Turn
What do you think? Have you ever heard of the Net Promotor Score / NPS? Do you recognize the practical explanation or do you have more suggestions? What are your success factors for measuring customer loyalty?
Share your experience and knowledge in the comments box below.
- Grisaffe, D. B. (2007). Questions about the ultimate question: conceptual considerations in evaluating Reichheld’s net promoter score (NPS). Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, 20, 36.
- Reichheld, F. F., & Markey, R. (2011). The ultimate question 2.0: How net promoter companies thrive in a customer-driven world. Harvard Business Press.
- Reichheld, F. F. (2006). The ultimate question. Harvard Business School Press, Boston, MA.
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