The Net Promoter Score (NPS) is a well-known indicator to evaluate customers' allegiance towards a company, its offerings, or its services. It's a fundamental component of relationship management, and this write-up offers a succinct introduction to the workings of the NPS.
Its operational model revolves around a straightforward question: "How likely is it that you would recommend us to a colleague or a friend?" The respondents rank their likelihood on a scale of zero to ten, with ten being the most favourable. They're then divided into three distinct groups: Promoters (9-10), Passives (7-8), and Detractors (0-6). Promoters signify the most dedicated customers, Passives are content but lukewarm, while Detractors express dissatisfaction.
The NPS calculation involves deducting the percentage of Detractors from that of Promoters. The NPS concept first surfaced in a Harvard Business Review article by Fred Reichheld in 2003.
Paul Reichheld emphasized the necessity for businesses to determine the proportion of advantageous and disadvantageous customers. The NPS serves as this barometer and steers your company's internal priorities by translating subjective customer feedback into a quantifiable metric.
The NPS can serve as a Key Performance Indicator (KPI) for business expansion since fostering brand loyalty is pivotal in achieving enduring growth. Reichheld's studies discovered that companies boasting a higher Promoter-to-Detractor ratio outpaced their rivals provided they maintained an NPS in the 50-80 range.
Significance of NPS*
- Promoters account for 80 per cent of referrals in most businesses.
- Detractors account for 80 per cent of negative word-of-mouth.
- Promoters generally defect at lower rates than other customers, meaning they have longer, more profitable relationships with a company.
- On average, an industry's NPS leader outgrew its competitors by a factor greater than two times.
*Source: Net Promoter System, 2013
However, subsequent research has cast doubts on these conclusions, with NPS critics suggesting incorporating supplemental questions to gain a deeper understanding of customer motivations and identify actionable insights.
Despite its strengths and weaknesses, research shows a positive correlation between NPS and business growth. Notably, the NPS is a simple yet powerful tool, facilitating comparisons between your business's performance and that of your competitors.
When Zooma and our friends use NPS, we use additional questions for insights and knowledge.
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