Net Promoter Score (NPS) is a concept from Marketing, it is a method to measure 'customer loyalty' with a questionnaire. It is an alternative to measuring customer satisfaction, which you can do with CES, ACSI, PREM and PROM. Two-thirds of Fortune 1000 companies use NPS because of its correlation with revenue growth.
Clear explanation
The Net Promoter Score was developed by Fred Reichheld, of Bain & Company and Satmetrix Systems. It was introduced by Fred Reichheld in 2003 in the Harvard Business Review with the article One Number You Need to Grow. A company's score can vary between -100 and +100. An NPS that exceeds zero is regarded as 'good', a score above 50 as 'excellent'.
Key question
The core of NPS is the question: "How likely is it that you would recommend our company/product to a friend or colleague?" To answer, the respondent (the customer) can fill in a score from 0 to 10.
Interpret the answers as follows:
- Respondents who gave a score of 9 or 10 are Promoters or Ambassadors.
- Respondents who gave a score of 7 or 8 are Passives or Neutrals.
- Respondents who gave a score from 0 to 6 are Detractors or Critics.
Promoters will recommend the company or product/service in their network and thus become an extension of the Marketing department, and they rarely call on Customer Service. You therefore serve this customer group with the best margins. You want more of that!
Formula
You calculate the final Net Promoter Score like this: NPS = % promoters – % critics. A calculation that is as simple as it is clear, with which you can quickly achieve a substantiated comparison of customer and product groups or, for example, different branches of a company. This construction is easy to understand and easy to explain, hence its popularity and wide application. If a company has more dissatisfied customers than enthusiastic customers, the score will be negative and vice versa.
Implementation
The NPS question is often seen as the ultimate question and NPS as the only method that correlates with sales growth, read: has predictive value. That is not right. NPS is a good, pragmatic method, the model is easy to implement in the way of working. It offers a recognizable starting point for baseline measurement and improvement plans to which you can attach KPIs. It becomes even more powerful if you apply NPS in combination with other questions and closed loop feedback. What would it be like if you received a notification in case of negative scores, so that you can talk to the customer in time to solve the problem?
Sectors
With all scores and figures in a handy dashboard NPS takes on meaning for the (development of an organisation. This can be a sales organization or, for example, a retailer. Other examples of industries in which NPS is often applied are: staffing and banking. Governments and non-profits are also increasingly working with NPS-like questions and since healthcare is no longer tied to certain prescribed metrics such as PREM and PROM, you also see CES and NPS in home care, physiotherapists and hospitals.
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