“Do what you do so well that they want to see it again and bring their friends” – Walter Disney
Calculating customers’ loyalty was never an easy task. One metric most businesses used in the past is to check the purchase history of customers. However, this cannot be effective for all industries. In the telecom industry, for instance, consumers may keep making purchases because the service is necessary but not that the company is great at delivery.
Therefore, in a bid to find out about customers’ loyalty, businesses are turning to surveys and evaluation metrics to determine which customer is likely to recommend them to their friends and why. One of these evaluation metrics is the “Net Promoter Score,” or NPS.
What Is Net Promoter Score?
The Net Promoter Score or NPS (as it is generally called) was co-developed by Fred Reichheld of Bain & Company, and Satmetrix Systems as a method of measuring customer loyalty. This score is used to measure the level of loyalty that a customer has for the organization. The Net Promoter Score works by asking a customer a simple and straightforward question, “How likely is it that you recommend our company to a friend?”.
The customer is then asked to choose between one and ten, with one being the least score obtainable and ten being the best. This is usually followed with another question to enable the respondent give a brief explanation for the score.
The NPS system categorizes the respondents into 3 groups; the Promoters, the Passives, and the Detractors. The Promoters are those who respond with a score of 9-10. This group is the loyal of all. Customers in this group tend to have value-creating behavior like repeated patronage and recommending the brand to their family and friends.
Next to the Promoters are the Passives. This group is equally loyal, but less, compared to the Promoters. Passive customers are those who respond with a score between 7 and 8. They are neither detractors nor promoters. They are not likely to promote a brand nor damage it with negative comments. Although, they can easily be converted to Promoters.
The last group in the Net Promoter Score system is the Detractors. Customers in this group are not likely to make repeated purchases or recommend the brand to their relatives. They may even proceed to make damaging and negative comments about the brand to prospective customers.
How a Company Calculates Its Net Promoter Score
A company calculates its Net Promoter Score by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters.
Company NPS = (% Promoters – % Detractors) x 100
For example, if after a survey, 70% rated your company 9 or 10, and 10% rate 1-6, your score would be (70% – 10%) x 100 = 60. A Net Promoter Score of 60 is a very good score (depending on the industry standard).
Why Should You Care About NPS?
First, the NPS system wields a huge impact on the growth of a business. It increases the promotion of the company. According to a Nielsen report((https://www.nielsen.com/us/en/insights/reports/2012/global-trust-in-advertising-and-brand-messages.html)), 92% of people trust recommendations from their friends and family over any other type of advertising.
Secondly, it allows a company to change from an ineffective to a more effective strategy. With NPS, a company can easily know the category most of its customers to belong and plan its service delivery strategies accordingly.
Lastly, research from the Harvard Business Review((Frederick F. Reichheld, ‘The One Number You Need To Grow’, https://hbr.org/2003/12/the-one-number-you-need-to-grow)) and Satmetrix, and Bain & Company((Rob Markey & Fred Reichheld, ‘Introducing the Net Promoter System Loyalty Insight’, https://www.bain.com/insights/introducing-the-net-promoter-system-loyalty-insights/)) suggests that there is a strong correlation between a high Net Promoter Score and the revenue of a company. This, according to the research, is because when a company adopts the NPS survey question and uses it as a key indicator, it ensures business growth as the company focusses more on improving the score.
