Times have never been better than they are now in the field of consumer analytics and business intelligence.
Thanks to significant advances with the way we capture and parse customer data, such as point-of-sale tracking and survey-based metrics, we can now paint a better and more accurate picture of what customers prefer and why.
In 2003, Bain & Company, a global consulting firm based out of Boston, introduced a one-question survey that has proven to be one of the best and most accurate tools to measure and understand the customer sentiment toward a service or a product: the Net Promoter Score. The firm began using the survey with some of their clients, and today NPS is one of the most popular tools for marketing and business strategists, equipping those tasked with determining the direction of a business with a key piece of data that is highly predictive of customers’ likelihood to repurchase or recommend a product or service.
The Net Promoter Score asks a single post-transactional question that surprisingly provides businesses with a variety of actionable insights, and one of the most valuable Key Performance Indicators available to business organizations. The question is simple:
How likely is it that you would recommend Company X (or Product X) to a friend or colleague?
Instead of a binary answer, those answering a Net Promoter Survey provide a linear assessment of their experience, with a rating scale of 0-10, ten being extremely likely to recommend and zero not likely at all. The responses are divided into three distinct categories or groups as follows:
“Promoters” are highly loyal customers who conduct unprompted, repeat business and have no hesitation recommending the product or service to their friends, family, or colleagues (scores of nine and 10).
“Passives” are satisfied but unenthusiastic customers, and your most vulnerable group since they can easily be persuaded to patronage the competition, should the competition be ready to bridge the experiential gap of what the customer wishes to receive and what you are delivering.
Conversely, just as this group (with scores of seven and eight) can easily stop frequenting your business, the same group, but from your competitor’s client pool, presents a superior opportunity for your business to gain wallet share if you have the business savvy and offerings to coax them to your side by carefully deciphering your competitors’ shortcomings.
“Detractors” are highly dissatisfied customers who are very unlikely to generate repeat business, much less give your business a verbal or written endorsement. These customers present a significant risk to your business organization since they are highly likely to give a negative reference about your business (scores of six and below).
The Net Promoter Score is calculated by subtracting the percentage of detractors (customers that have rated your business with a NPS of 0-6) from the percentage of promoters (customers who have rated your business 9-10). Here is an example:
Total number of survey responses: 100
Total number of promoters: 40 (40%)
Total number of detractors: 10 (10%)
Total number of passives: 50 (50%)
Net Promoter Score in percentages: +30
Based on NPS samples collected by Bain & Company, businesses can feel confident they are trending in the right direction if they have a Net Promoter Score of +15 or more. The simplicity of this one-question survey makes it available to pretty much any business, regardless of size.
Among companies currently using the NPS to gauge customer sentiment are: Expedia, Inc., CVS Caremark, The Home Depot, Macy’s, Southwest Airlines, American Express, Facebook, U.C. Berkeley, Intuit, Chick-fil-A, Porsche, Verizon, and BBC (among many others).
Pretty solid list, right?
What Do We Know About Each NPS Group?
- Promoters account for 80 percent of referrals across all industries.
- Promoters are far more likely to submit an unprompted, positive online review than a passive one.
- Detractors account for 80 percent of negative word of mouth.
- Promoters are far more likely to repurchase and far more likely to engage with new product lines launched by your business.
- A higher NPS is directly associated with significant decreases in customer churn rate.
Assess and Build Customer Loyalty
Net Promoter Score is one of the most predictable metrics when it comes to ongoing customer loyalty. It goes beyond customer satisfaction by capturing your customers’ willingness to advocate on your behalf and give a direct recommendation about your product or service.
Net Promoter Score provides continuity by allowing you to make immediate changes in the business, and accurately measure how the changes you have made impact your customers’ likelihood to promote and advocate your offering.
In short, your NPS is your best partner when it comes to refining your marketing, operational, and customer experience strategy, giving you accountability every step of the way.
The goal is simple: to create an upward trend by making changes to the way you do business, and measuring how those changes change the way customers are willing to engage with your products or services.
NPS Helps Your Business Focus on Customer Satisfaction
Customer satisfaction happens when your business is able to seamlessly deliver what it has promised through marketing and promotional efforts. Because of the simplicity of the NPS, you are able to capture the sentiment of a large percentage of your customers, resulting in a clearer picture of customer satisfaction trends.
Happy customers are the best type of customers for a business organization. By using and tracking NPS, you will know if what you are doing on a daily basis, from personnel training to product development, pricing strategy and facility management, is what the customer needs in order to feel a higher level of satisfaction.
Once you identify what triggers customer satisfaction, you can then direct marketing and operational budget allocations to areas where you will gain the most traction.
NPS Helps Foster a Culture of Advocacy
Working toward shaping your offering to exceed customers’ expectations and secure a high Net Promoter Score potentially results in an increased ability to secure additional advocates.
A brand advocate is the most powerful and sustainable marketing tool an organization can aspire to have. When a brand advocate recommends you to his or her friends, you can be sure that his or her social network is far more likely to engage with your business, and far more likely to be demographically compatible with the customer segments you are most likely to serve.
With NPS, there is always space for betterment by working toward converting your passives to promoters, and adding additional promoters by establishing effective marketing strategies aimed at incremental business.
NPS Helps Capture Additional Actionable Insights
When you need to go beyond the one Net Promoter Score question, you have the option to activate response-based feedback to allow your respondents to voluntarily provide you with the details associated with their response.
Through the careful analysis of their free-text responses, your business can work on correcting trends directly associated with the experiences of detractors, thus creating an offering that is far more likely to satisfy the needs of future customers, resulting in optimized customer experiences that are conducive to a higher overall Net Promoter Score.
NPS Helps You Reduce Customer Churn
One of the greatest advantages of increased customer loyalty is having the option to redirect your marketing dollars toward capturing incremental business, instead of using it to replace the customers you are losing due to dissatisfaction with your offering.
A higher Net Promoter Score is directly correlated with improved retention, increased number of customer engagements in a calendar year, and an increased likelihood that loyal customers will make larger purchases. Less churn equals higher lifetime value and, consequently, a more sustainable and expandable business model.
As customer churn rate decreases, you will be able to explore other avenues for increased profit, most importantly the possibility of business expansion, as you achieve a large customer pool within a geographical area.
NPS Helps You Drive Revenue
The goal of every healthy business is to grow in revenues and profitability while decreasing inefficiencies and per-transaction costs. A well-managed Net Promoter Score that continues to maintain an upward trend can help your business drive revenue in surprising but highly effective ways.
Promoters are less price-sensitive. The more promoters you have, the more you can test upward price elasticity based on increased demand. If customers love your products or services, then they are likely to be willing to spend a little more than they normally would to ensure the whole experience meets and exceeds their expectations.
A higher NPS gives your business leeway to work on expanding your offering or territory, instead of having to struggle to earn new customers in order to replace those that tried the product once but were highly dissatisfied with their experience.
Having a promoter-rich customer base helps your business secure a position of popularity among competitors offline and online. Promoters are far more likely to give a business a five-star review, whether the business has a process in place to request reviews or not.
Companies with a high Net Promoter Score generally sell more products and services per transaction than companies that don’t.
Want to learn more about NPS and how to implement a successful customer experience strategy? Check out our previous post, “7 Ways You Can Use Net Promoter Scores (NPS) to Improve Online Reputation and Customer Satisfaction”.