The Net Promoter Score (NPS)

What is NPS?

The Net Promoter Score (NPS) is a widely-used metric designed to gauge customer loyalty and satisfaction towards a business, brand, or product. It operates on a simple question: "On a scale from 0 to 10, how likely are you to recommend our [product/company/service] to a friend or colleague?"

How to Calculate Net Promoter Score (NPS)?

Calculating the Net Promoter Score involves the following steps:

1. Survey your customers: Administer the NPS question: "On a scale of 0 to 10, how likely are you to recommend our [product/company/service] to a friend or colleague?"

2. Categorize respondents:

- Promoters: Those who rate their likelihood as 9 or 10.

- Passives: Those who give a score of 7 or 8.

- Detractors: Those who rate from 0 to 6.

3. Compute the percentage of respondents in each category:

- Percentage of Promoters = (Number of Promoters / Total Number of Respondents) * 100

- Percentage of Passives = (Number of Passives / Total Number of Respondents) * 100

- Percentage of Detractors = (Number of Detractors / Total Number of Respondents) * 100

4. Determine the NPS:

- NPS = Percentage of Promoters - Percentage of Detractors

The resulting NPS score can fall anywhere between -100 and +100. A positive NPS reflects a surplus of promoters over detractors, indicating higher customer satisfaction and loyalty. Conversely, a negative NPS suggests more detractors than promoters, signaling areas that require attention.

Example

The following data were obtained from a customer survey of 100 people:

Promoters (Scores 9-10): 50 customers

Passives (Scores 7-8): 30 customers

Detractors (Scores 0-6): 20 customers

Computation of the Percentage of Respondents in Each Category

Percentage of Promoters = (50 / 100) * 100% = 50%

Percentage of Passives = (30 / 100) * 100% = 30%

Percentage of Detractors = (20 / 100) * 100% = 20%

Determination of the NPS

NPS = Percentage of Promoters - Percentage of Detractors

NPS = 50% - 20% = 30

Why to use NPS?

Net Promoter Score (NPS) is employed by organizations for several key reasons:

1. Measure Customer Loyalty: NPS is a straightforward metric that quantifies customer loyalty and satisfaction. It helps businesses gauge how likely customers are to recommend their products, services, or brand to others.

2. Identify Advocates and Detractors: By categorizing respondents as Promoters, Passives, or Detractors, NPS provides a clear distinction between satisfied customers (Promoters) and dissatisfied ones (Detractors). This segmentation enables targeted actions.

3. Pinpoint Improvement Areas: NPS feedback reveals areas that require attention. Detractors' comments can highlight specific issues that need resolution, guiding companies in making necessary improvements.

4. Benchmarking: Comparing NPS scores to industry or market benchmarks offers insights into a company's competitive position. It helps identify whether the business is outperforming or lagging behind its peers.

5. Drive Customer-Centric Strategies: NPS encourages a customer-centric approach. It motivates organizations to prioritize customer satisfaction, which can lead to improved customer experiences, increased customer retention, and, ultimately, revenue growth.

6. Employee Engagement: Employee Net Promoter Score (eNPS) aligns employees with customer satisfaction goals. Satisfied employees are more likely to deliver better service, positively impacting the customer experience.

7. Track Changes Over Time: NPS allows businesses to monitor trends in customer loyalty. Over time, tracking NPS scores can reveal whether efforts to enhance the customer experience are succeeding or not.

8. Prioritize Resource Allocation: By understanding which areas or products have the highest NPS, organizations can allocate resources more efficiently, focusing on what matters most to their customers.

Types of NPS

Transactional NPS:

Transactional NPS focuses on specific interactions or transactions between the customer and the company. It assesses customer loyalty and satisfaction based on a recent transaction, such as a purchase, support call, or website interaction. This type of NPS helps companies understand how well they perform during individual customer touchpoints.

Relationship NPS:

Relationship NPS, on the other hand, takes a broader view. It measures overall customer loyalty and satisfaction with the company over an extended period. This type of NPS looks at the customer's entire relationship with the brand, encompassing multiple transactions and interactions. It provides a more comprehensive picture of the customer's long-term loyalty.

Employee NPS (eNPS):

Employee Net Promoter Score (eNPS) adapts the NPS concept for internal purposes. Instead of customers, it focuses on employees. eNPS asks employees how likely they are to recommend their company as a place to work to friends or colleagues. High eNPS scores are indicative of a satisfied and engaged workforce, which can positively impact customer experience and business performance.

Brand NPS:

Brand NPS assesses the overall perception and loyalty toward a company's brand. It measures customers' willingness to recommend the brand itself, irrespective of specific products or services. A high Brand NPS indicates a strong and positive brand image.

Product NPS:

Product NPS narrows the focus to a specific product or service offered by a company. It gauges customer satisfaction and loyalty related to that particular product. This helps companies understand which products are performing well and which may need improvement.

Market Benchmark NPS:

Market Benchmark NPS compares a company's NPS score to industry or market averages. It provides context by showing how a company's customer loyalty and satisfaction measures up against its competitors. This information is valuable for understanding a company's competitive position and identifying areas for improvement.

Drawbacks of NPS?