What is NPS & Net Promoter Score?

NPS, or Net Promoter Score, is a metric used to measure customer satisfaction and loyalty towards a company, product, or service. Developed by Fred Reichheld, Bain & Company, and Satmetrix in 2003, NPS has become one of the most popular tools for evaluating customer experience and predicting business growth.

Functioning:

NPS is based on a single fundamental question: “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?”

Respondent Categorization:

Based on their responses, customers are classified into three groups:

1. Promoters (score 9-10): Loyal and enthusiastic customers who are likely to continue purchasing and recommending to others.

2. Passives (score 7-8): Satisfied but unenthusiastic customers who are vulnerable to competitive offerings.

3. Detractors (score 0-6): Dissatisfied customers who may damage the brand through negative feedback.

NPS Calculation:

NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters:

NPS = % Promoters – % Detractors

The result is a number between -100 and 100.

NPS Interpretation:

– NPS > 0: Generally considered good

– NPS > 50: Considered excellent

– NPS > 70: Considered world-class

NPS Benefits:

1. Simplicity: Easy to implement and understand.

2. Benchmarking: Allows comparisons between companies and industries.

3. Predictability: Correlated with business growth.

4. Actionability: Identifies improvement areas and dissatisfied customers.

NPS Limitations:

1. Oversimplification: May not capture nuances of customer experience.

2. Lack of Context: Does not provide reasons for assigned scores.

3. Cultural Variations: Scale interpretations may vary across cultures.

Best Practices:

1. Follow-up: Ask the reason for the score to obtain qualitative insights.

2. Frequency: Measure regularly to track trends.

3. Segmentation: Analyze NPS by customer or product segments.

4. Action: Use insights to improve products, services, and experiences.

Implementation:

NPS can be implemented through email surveys, SMS, websites, or integrated into digital applications and products.

Business Importance:

NPS has become a key metric for many companies, often used as a KPI (Key Performance Indicator) to evaluate customer satisfaction and overall business performance.

NPS Evolution:

Since its introduction, the NPS concept has evolved to include practices such as “Closed Loop Feedback,” where companies actively follow up with respondents to resolve issues and improve experience.

Conclusion:

The Net Promoter Score is a valuable tool for measuring and improving customer loyalty. While it has limitations, its simplicity and correlation with business growth have made it a widely adopted metric. When used alongside other customer experience metrics and practices, NPS can provide valuable insights to drive customer satisfaction and business growth.