What is NPS and Why does it matter??

5 January, 2017 |

What is NPS?

 

An Introduction to Net Promoter® Score

The Net Promoter Score is a powerful management philosophy: both a loyalty metric and a discipline
for using customer feedback to fuel profitable growth in any business. The Net Promoter Score, or NPS, is a straightforward and simple metric that helps companies and employees understand and be accountable for the way they engage with customers.

Developed by Fred Reichheld of Bain & Company and Satmetrix, the Net Promoter Score at its core, tracks how customers represent a company to their friends, families and associates.

Fred Reichheld wrote a best selling book, called The Ultimate Question “Would you recommend us to a friend?” and updated it with this 2.0 version.

By asking your customers this question, you identify detractors, who sully your company reputation and readily switch to your competitors, passives, who are generally satisfied, perhaps sit on the fence a bit, not yet convinced to switch or why they stay and promoters, who are your companies advocates, who openly recommend your products, services and from whom you generate good profits and sustainable growth.

To buy a copy of this book, click on this link

Many executives focus on Net Promoter Score as they believe it is a valuable metric for growing both revenue and profits, as well as providing a framework and a system to identity root-causes of customer dissatisfaction.

Research shows that companies that have the highest annual revenue growth year-on-year also have the highest customer satisfaction ratings, two times higher than the average. For example Apple is often cited as a case study for high NPS that correlates to their phenomenal growth.

How does NPS work?

“How likely is it that you would recommend [Your Company] to a friend or colleague?” (on a scale of 1-10)


And based on your customer’s response, you classify your customers into one of three categories or ‘buckets’, promoters, passives and detractors.

• Promoters = those who score 9s and 10s
• Passives = those who score 7s and 8s
• Detractors = those who score 0s through 6s

Once each customer is classified into a respective group, your company’s NPS score can be calculated by subtracting the percentage of Detractors from the percentage of Promoters.
Note that Passives are not counted in the score. The score is generally displayed as a whole number by dropping the percent sign for the final number, i.e. NPS of +25, 0 or -10. If your company scores 0, then you have the exact same amount of customers who love you as who don’t.

Promoters

Promoters are described as your best customers who are loyal and enthusiastic about your company and will continue buying and referring others. Promoter referrals fuel growth that you don’t have to pay for. The promoter cut-off point is intentionally high at 9 and 10s are exceptionally rare.

Passives

Passives are generally satisfied customers, but lack the enthusiasm seen in Promoters. Ratings of 7s and 8s are impressive, but research has found that this group is vulnerable to competitive offerings and is therefore not immune to defection. Your product, services and employees here only need to do a little bit more to convert these customers into a 9 or 10.

Detractors

Detractors are a potentially dangerous bunch who are often unhappy and can diminish your brand through negative word of mouth. A customer who rates your company between a 0 and a 6 requires proactive outreach to ‘close the loop’ and resolve issues before further damage is done.

You can simply ask any customer who scores you a 0 to 6, if they would like you to follow-up and contact them about their customer experience. Also ‘Super detractors’ who score you 0 to 2 are the best place to start your analysis of the root-causes of your failures and what you need to urgently address.

Motivating employees

Employees need to do a lot more to win-over customer who score you a 0, and this motivation can be harnessed, nurtured and utilised to great effect across your business. Getting your employees to walk in the shoes of your customers, especially who score you a 0 is a very powerful metaphor to positive change.

But for any metric to add value, it needs to be accompanied with some additional commentary regarding the reasons for a high or low score, especially for a low score.

So in all surveys, ask your customers why they give you a particular score. You can also ask customers to rate their customer satisfaction, customer effort, rate your products, your sales process, your after sales service, i.e. support team or helpdesk, billing or collection processes. Another key part is to also for some customer feedback on what you need to do more of or less of (i.e. what you need to improve or fix).

Customers are usually very happy to share and are very insightful of your failings. Leaders within organisations, find that using customer verbatim feedback can be very powerful to evoke positive change as they are quoting the exact words of your customers, not their own.

Resonation, Customer experience consultancy

Why Does NPS matter??

The benefits of NPS are:

1. Simple question, easy for your customers and employees to understand.

2. Sorts customers into promoters, passives and detractors, where you can have a strategy for each category.

3. You can ‘close the loop’ with your detractors and proactively contact the customers who score you a 0 to 6, quickly trying to resolve any potential issues, recover the situation, repair any damage to your relationship and restore future customer loyalty.

4. Allows you to celebrate Perfect 10s and recognise those employees who go above and beyond to satisfy your customers. Also works as a way to promote examples of what others should be doing to score a perfect 10.

5. Creates a framework or system, where you can ‘listen, learn and act’ to customer feedback, and do something about it. Following up on your customer feedback provides you with insights into what you can action and improve your overall customer experience, growth and profits.

6. Easy to measure over time so you can track and compare all in the once place and against the same survey. Having the same survey in place means the template doesn’t change so you can compare monthly, quarterly or annually whatever works best for you. You can compare with other companies or internally as well.

7. You can set annual targets internally to grow your NPS and reward your employees based on one single KPI (key performance indicator) outcome. Easy to adopt, report and buy into.

8. The is a clear business case to invest your time, effort and resources into growing your NPS as companies who report the highest revenue growth annually also report the highest customer satisfaction ratings.

For more information on NPS, Check out Satmetrix short video explanation on the topic here.
“You survey your customers and ask them one simple question…”

Stephen Ruschitzko
Stephen Ruschitzko

Stephen Ruschitzko is MD of Resonation and brings 25 years of customer service operational experience working in Telecoms and Media to his new role. He understands acutely the pressure placed on C-level executives to create customer experience (CX) programmes and initiatives that deliver tangible, bottom-line results within large organisations.