The Net Promoter Score is an index that essentially measures customer loyalty to a product, service, or company. Typically, this number is obtained through a survey that is sent to customers after interaction with a brand.
The NPS is easy to gauge, since it is based off of a single question:
On a scale of 0-10, how likely are you to recommend our product/service/company to a friend or colleague?
Based on the number that is given, the customer is then placed into one of the three categories: Promoter, Passive, or Detractor. These categories describe how the customer feels about the product or service, their loyalty to the company, and whether or not they would recommend it. The categories are explained in further detail below.
After gaining a response from the customer, it is common to then follow up with an open-ended question to gain more insight:
What is the primary reason for your score?
The creators claim that a company’s Net Promoter Score correlates with revenue growth – companies with high NPS scores tend to grow at more than twice the rate of their competitors.
Calculating the NPS is a very simple process. Based on the number that a respondent gives, they are placed into one of the following 3 categories:
Promoters: these are the people who have responded with a 9-10 score. They are very positive towards your product or service, and are very likely to recommend your brand to potential customers.
Passives: these are the people who have responded with a 7-8 score. These customers do not spread negative word of mouth, however, are not very likely to spread positive word of mouth either. The Passives are not included in your overall NPS score because their responses have a net neutral effect.
Detractors: these are the people who have responded with a 0-6 score. They are unhappy with your service, and are likely to damage your brand reputation with negative publicity.f
Calculating your company’s overall NPS can be done by subtracting the percentage of Detractors from the percentage of Promoters:
(% of Promoters) – (% of Detractors)
Who Created It?
The Net Promoter System was created by Fred Reichheld, Bain & Company and Satmetrix back in 2003. Before this system was implemented, traditional customer satisfaction survey methods were used. Reichheld felt that these methods proved ineffective because often these surveys were too long and complicated and did not provide actionable insight. With the Net Promoter System, organisations can receive feedback much quicker from customers, placing them ahead of their competitors as well as allowing them to take action faster. Today, NPS is effectively used by hundreds of organisations worldwide.
The Link Between NPS And A Company’s Financial Success
Today, markets are becoming more competitive than ever, and customer expectations are at a high. With this in mind, Gerard Kliesterlee, CEO of Royal Philips Electronics, realised he needed to change the culture of his product driven organisation. With help from the chief marketing officer, Geert van Kuyck, he searched for an approach to implement this change that aligned with the company’s strategic philosophy of “sense and simplicity”. After researching approaches taken by various major firms around the world, he landed on NPS. They chose to take this approach because NPS ties directly to revenue growth, and drives action by providing feedback that is specific and immediate.
After some investigating, van Kuyck found that there was a strong connection between Philip’s NPS score, compared to their biggest competitor, and their rate of growth relative to competitors in the market. They learned that leading the competition on NPS mattered more than obtaining a specific score. After doing some additional digging, the local research teams found that relative NPS explained 90% of the changes in the market share between Philips and its key competitor. Corporations around the world have done similar analysis and the trends they found were very much similar.
Charles Schwab Corporation: Case Study
In 2004, Charles Schwab Corporation, a financial services firm, had taken a serious turn for the worse. The founder of the company, Charles “Chuck” Schwab, had retired the previous year, but was asked desperately to take the reins once again. When he returned to the firm, he found that things were out of control. Not only had the stock price dropped from $40 to $6 in a three year period, but about a quarter of their revenue was coming from overcharging their customers. They had completely lost their way and were treating their clients poorly.
At first, they focused on cutting costs to get back on track. But by the fall of 2005, they realised they needed to start focusing on their core clients again and mending those relationships. The leadership team decided to start implementing the Net Promoter framework. Senior Executives spread the idea around the firm, and began to test out survey techniques. When the time was right, they launched the survey and called it the “Client Promoter Score”. This marked the beginning of a huge turnaround.
By 2008, the firm was back on its feet and they had regained their position as a leader in the industry. Their Client Promoter Score rose from -35 percent to 35 percent and their stock had tripled. Some of their major changes included: aggressively reducing prices, eliminating their nuisance fees, increasing their resources for the client-facing staff, and focusing on closing the loop.
When interviewed by a news reporter, Schwab explained, “I don’t care what kind of business you’re in. Clients referring us to their friends or relatives is so much more powerful than any advertising we could ever do.”
Important Notes To Remember
- Use a real email address: choose either a company email address or a person at the company’s email to send out the survey on. It is better to have it be an email address that is linked to an actual person in case a customer wants to send additional feedback. An email from a person and not a generic ‘[email protected]’ will yield better response rates too.
- First impressions are important: make the email short and to the point. The first impression is important because it is the difference between a customer opening the email to read it or completely ignoring it.
- Being professional and trustworthy is key: customers will not look at your survey request if they do not believe it is legit. Make sure your brand logo and colours are visible. Also adding a phone number and address can help reinforce the validity of your invite.
- Design for mobile: over half of emails are now opened on smartphones. A well formatted email should look the same, whether it is opened on a smartphone or computer. The survey itself should also be responsive and optimised to the device and screen it is being viewed it.
- Phillips Electronics tracked NPS for a sample of accounts over time and found that where NPS increased, revenue grew by 69%. Where it remained steady, revenue grew only by six percent. And where NPS declined, revenues actually decreased by 24%.
- Charles Schwab Corporation put an end to their downward spiral after implementing an NPS framework. They found that their stock had tripled as their Client Promoter Score rose from -35 to 35, which was a 70% increase in just a few years.
- When Apple stores began implementing the NPS system in 2007, they went from a score of 58 to 70. They explained how having NPS makes everyone in the company committed to do the right thing, which leads to profitable growth. A typical electronics store might record $1,200 in revenue per square foot, which Apple exceeds by $6,000 per square foot.
- In 2008, Rackspace was saved by NPS, which helped them weather the storm after being hit hard by the stock market collapse. They had raised their NPS score by 20 points, at 63%, and saw their churn rates decline by more than a third, from 3% to 1.9%.
Source: People Pulse