What is NPS?

Jos Postma

Updated on:

Reading Time: 4 minutes

Net Promoter Score (NPS) is a management tool used to gauge the loyalty of a firm’s customer relationships. It serves as an alternative to traditional customer satisfaction research and is claimed to be correlated with revenue growth. NPS has been widely adopted with more than two-thirds of Fortune 1000 companies using the metric.

The NPS is based on a single question

“On a scale from 0 to 10, how likely are you to recommend [company/product/service] to a friend or colleague?” Based on their rating, respondents are classified into three categories:

  1. Promoters (score 9-10): These are loyal enthusiasts who will keep buying and refer others, fueling growth.
  2. Passives (score 7-8): They are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
  3. Detractors (score 0-6): Unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

To calculate the NPS, subtract the percentage of Detractors from the percentage of Promoters. NPS can be as low as −100 (everybody is a detractor) or as high as 100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent.

NPS provides the following advantages:

1. Simplicity and Understandability

NPS is distinguished by its straightforward approach. It asks one fundamental question: “On a scale of 0-10, how likely are you to recommend our company/product/service to a friend or colleague?” This simplicity is its strength, making it accessible for all team members, regardless of their role or seniority. Here’s why this clarity matters:

  • Actionable Insights: Employees can easily grasp what the score represents, allowing them to align their actions towards enhancing customer satisfaction.
  • Universal Language: The NPS provides a common metric for discussing customer loyalty and satisfaction across departments, fostering a customer-centric culture.

2. Benchmarking Capabilities

NPS serves as a powerful benchmarking tool. It enables you to position your company in the competitive landscape and set realistic goals based on industry standards. Consider the following:

  • Industry Standards: Knowing where you stand in relation to industry averages helps identify areas of strength and opportunities for improvement.
  • Performance Tracking: By monitoring NPS over time, you can gauge the effectiveness of customer service initiatives and adjust strategies accordingly.

3. Customer Segmentation

Delving into NPS scores allows you to segment your customer base into Promoters, Passives, and Detractors. This segmentation is pivotal for several reasons:

  • Targeted Strategies: Understanding the composition of your customer base enables you to tailor communication and engagement strategies to transform Detractors into Promoters.
  • Enhanced Customer Experience: By addressing the specific concerns of each segment, you can elevate the overall customer experience, fostering loyalty and advocacy.

4. Predictive of Growth

Research has shown that a higher NPS can be indicative of future business growth, particularly in customer-centric industries. Here’s how NPS links to growth:

  • Customer Retention: Promoters are more likely to remain loyal customers, reducing churn and sustaining revenue streams.
  • Word-of-Mouth: Satisfied customers are invaluable advocates for your brand, driving organic growth through referrals and recommendations.
READ  Agile Scrum vs Rapid Agile Development

However, there are also criticisms of NPS:

Over-simplification Concerns

While NPS offers a quick glance at customer loyalty, it’s a broad stroke that might not capture the nuanced tapestry of customer experiences. To mitigate this:

  • Complement with Qualitative Insights: Pair NPS surveys with open-ended questions that probe deeper into the reasons behind a score. This can unearth actionable insights and specific areas for improvement or reinforcement.
  • Segment Your Analysis: Break down NPS scores by customer demographics, purchase history, or interaction touchpoints to uncover more nuanced trends and patterns.

Cultural Bias Challenges

NPS can be subject to cultural biases, as attitudes towards surveys and scoring can vary widely across different regions. To ensure more accurate international comparisons:

  • Adjust for Cultural Context: Be aware of cultural norms that might influence response tendencies. Consider calibrating scores based on regional response patterns or supplementing NPS with culturally adapted engagement metrics.
  • Use Relative Benchmarks: Compare NPS scores within the same cultural or regional context rather than absolute global benchmarks to gauge performance more reliably.

Specific Feedback Deficits

A notable critique of NPS is its lack of detailed feedback, making it hard to pinpoint areas for improvement. To bridge this gap:

  • Follow-up for Clarity: When feasible, follow up with respondents, especially detractors and passives, to gather more detailed feedback on their scores. This can provide specific insights into potential improvements.
  • Integrate with Other Metrics: Use NPS in conjunction with other metrics that measure customer satisfaction, such as Customer Satisfaction Score (CSAT) or Customer Effort Score (CES), to gain a more comprehensive understanding of customer experience.

Implementing a Holistic Approach

To truly benefit from NPS and drive professional growth, consider the following strategies:

  1. Continuous Learning: Stay informed about the latest methodologies and tools in customer experience measurement. Continuous learning will enable you to adapt and refine your approach effectively.
  2. Data-Driven Decision Making: Use the data from NPS and supplementary sources to inform strategic decisions. This approach ensures that actions are grounded in customer feedback, enhancing satisfaction and loyalty.
  3. Stakeholder Engagement: Engage various stakeholders, from front-line employees to senior management, in understanding and acting on NPS insights. A collective effort magnifies the impact of improvements.

Despite these criticisms, NPS remains a popular tool due to its simplicity and ability to provide a quick snapshot of customer loyalty and satisfaction. Businesses often use NPS as a starting point for deeper customer research and to track customer sentiment over time.

+ posts

If you are interested in staying up-to-date with technical product ownership and management, coaching and training, and gaining insights from a agile professional.
--> Bookmark this website, Subscribe on the "continuous learning updates and Connect with me on LinkedIn.