NPS- What, Why & How
Feb. 09, 2023
--By Sushant Banga--
What is Net Promoter Score..?
Net Promoter Score is one of the most commonly used customer experience metrics globally. Since its origin in 1993 till date, the metric has evolved and been adopted. Net Promoter Score" or, more recently, "Net Promoter System" (as mentioned in The Ultimate Question written by Fred Reichheld, and Rob Markey).
Let us learn about Net Promoter Score and later talk about the Net Promoter System. NPS is a metric used in customer experience programs. It measures customers' loyalty to a brand, and the scores are derived with a single question. The scores range from -100 to +100; a higher score is desirable.
It was developed by Fred Reichheld in 1993 and later adopted by Bain & Company in 2003. At present used by businesses across the globe to measure and track how their customers perceive them.
The Single Question…
How likely is it that you would recommend [Product /Service] to a friend or colleague?
Respondents give a rating between 0 (not at all likely) and 10 (extremely likely), and, depending on their response, customers fall into one of 3 categories to establish an NPS score.
● Promoters respond with a score of 9 or 10 and are typically loyal and enthusiastic customers
● Passives respond with a score of 7 or 8. They are satisfied with the service or product but unhappy enough to promote the brand. They are typically tire kickers and play a role in swinging scores at either side
● Detractors respond with a score of 0 to 6. Unhappy customers who are unlikely to do business or buy again may discourage others from buying.
Calculating Net Promoter Score
It's simple to calculate the NPS score for a touch point or Organisation – just subtract the percentage of Detractors from the percentage of Promoters.
For example, if 30% of respondents are Detractors, 10% are Passives, and 60% are Promoters, your NPS score would be 60-30 = 30.
Type of NPS :
Brand / Relationship NPS
Brand NPS surveys are regularly deployed, i.e., quarterly or once a year. The goal is to get a periodic experience health check on customers and understand how they feel about the Company. The sample survey data can be used to check customer health on a rolling basis and establish a benchmark for company success.
T-NPS (Transactional NPS)
T-NPS are Post interaction NPS Surveys sent out after the customer's interaction at any touchpoint. Typically it follows the Omni Channel approach, and surveys get triggered through similar interaction mediums (For example- an online or retail purchase support call, Ticket Closure, Post Delivery ). It's used to understand customer satisfaction granularly and provide feedback about a specific topic. It plays a pivotal role in defining the improvement road map for Brand NPS.
It's recommended to use both types to understand your customer at the macro and micro levels.
Some examples where Net Promoter System is used :
· Voice of Customer B2B (Relational NPS)
· Voice of Customer B2C (Transactional and Relational NPS)
· Voice of Employee (Relational NPS)
· Voice of Process
Why NPS and its Key Benefits:
1. Build Customer Loyalty
One way to determine precisely how loyal your customers are is with the Net Promoter Score. Measuring customer satisfaction is no longer enough, and this system acknowledges that. You need to know how loyal your customers are to figure out how happy they are! The advantage of NPS is that it's one of the only systems that allow you to connect improved customer loyalty to business results. Thus, you can accurately determine how pleased your customers are by asking a single question, and then, in a few months, you can run another survey to see if the changes you've made have impacted the customer experience.
2. Improve Customer Satisfaction
As we've already mentioned, satisfaction shouldn't be the endgame. However, it is a stepping-stone and an important one in your journey to achieving customer loyalty. First, you must satisfy your customers before delivering delight. The problem is that to achieve customer satisfaction, you must know what customers are thinking, and that's where NPS® comes in. It gives you the tools you need to determine how satisfied your customers are and keep improving until you increase the number of satisfied customers and their level of satisfaction. You have solid data to tell you whether you're doing it right or not!
3. Convert more Customers into Advocates
Word-of-mouth advertising is one of the most effective promotional tools in any business' arsenal. No tool is as powerful in acquiring new customers as recommendations from existing customers. In the NPS System, those customers who are most likely to recommend your business/products/services to others are called advocates. And with NPS, you can discover just how many advocates you have among your customer base. Importantly, the more promoters your business has, the better your bottom line will be.
4. Generate Increased Customer Feedback
It will help you identify those customers you need to establish a better connection with to discover their issues and fix them instead of making process changes blindly. So, take advantage and dig as deeply as possible into the issues that bother and displease your customers. Not only can you fix the problem, but you can also develop systems to ensure it doesn't happen again to another customer.
However, don't ignore your Promoters either. Just because they're happy with your products/services/business doesn't mean they might not have issues too. Only that they could be smaller, but they may be problems that still need to be addressed.
5. Lower Customer Defection Rates
Bain and Company conducted some studies and discovered that promoters have lower defection rates than passives or detractors.
Considering that customer acquisition costs are high by comparison and continue to rise, minimizing the number of customers leaving your brand is a compelling way to grow your business. And since you know that promoters tend to defect less often, you can put more money and effort into converting those customers that are "Passives" and "Detractors" into "Promoters" instead of going all in into acquiring new customers.
6. Increase the Lifetime Value of a Customer
By using NPS®, you'll have the data you need to help create more promoters for your business. The more promoters you have, the more money you will make and the easier it will be to grow your business.
Statistics show that promoters spend more than new customers, detractors, or even passives. They also tend to be less price sensitive, meaning that a slightly cheaper option elsewhere won't tempt them to defect. Promoters also help reduce acquisition costs and improve your lead generation efforts because they account for most referrals. So, the more promoters you have, the more referrals you gain.
7. Integral Business KPI
NPS can be a key performance indicator for your entire business because it will tell you how many customers will likely re-purchase your product or recommend the brand to others. It can be used to discover how effective your frontline staff is and help them understand where they need to focus their efforts more. The more tools and resources you provide your employees with, the better able they will be to offer your customers the outstanding experience they're looking for.
8. Incredible Degree of Scalability
The question you use for the NPS survey can be as broad or as narrow as you need it to be. NPS is so easily scalable because it's something everyone understands. It's a familiar idea that your entire business can get behind, with your entire team being on the same page, compared to other more complicated metrics that don't have the same effect.
9. Strong Co-relation with Business Growth
NPS could explain 25% and 65% of the organic growth rate variations between competing companies. Thus, a leader in NPS generally expanded more than two times faster than their competition. In other words, NPS can be used to predict how a company will grow in the future.
10. Lower Research Costs
The Net Promoter Score helps lower these costs because it is simple enough to be done in-house without needing external assistance. In other words, companies gain valuable insight at minimal cost, making it easy to run surveys regularly, which is essential to staying competitive.
How about NPS?
Deploy Net Promoter System instead of Net Promoter Score
Knowing about the Net Promoter score will help to understand the Net Promoter system better. It would not be wrong to say the Net promoter system completes the journey from an organization’s standpoint. Deploying Net Promoter System is a different ball game as it is much more than getting scores and trends. It's a tectonic shift from target-driven culture to developing a system for bringing the Voice of the Customer to the heart of the business. Making Organization Ecosystem more customer-centric and developing essential skills like listening, Servicing with Empathy, and smiling. Each Omni Channel interaction can be converted into a moment of truth for its customers.
Where Net Promoter Score (NPS) Can Go Wrong
Think of Net promoter score or Net Promoter System, like rocket fuel. If you leave it alone, it won't do much. But when you load it into a responsive, proactive, customer-driven company: Shoot off. The most successful companies are those that use NPS data to fuel and direct their marketing strategies, customer success best practices, and even product development. But while obtaining your NPS is easy, knowing how best to use the information is anything but.
Key Avoidable Failure Aspects in NPS Deployment
● Focus remains on scores –Organisations should develop Net Promoter System and align the entire ecosystem around it.
● Driving NPS is an individual's or functional responsibility – NPS should be the common KRA for the entire Organisation, and Customer Success Teams / CS Teams should coordinate improvement discussions among functions.
● Lengthy / Complicated Survey Designs – Keep it Short and Simple.
● Over Ambitious NPS Targets –Moving the NPS needle sometimes requires a tectonic shift in strategy; its sudden positive or negative movement should be questioned /reviewed diligently across the hierarchy. In an ideal scenario, It should move by the business outlook.
● Discussing Only Detractors – Understand reasons behind Promoters and Celebrate even Small Wins
● Technology Dependency – The latest sophisticated tools provide 1st, at times, 2nd level of insights and are actionable; however, seeking support / relying on a set of SMEs or Consultants is advisable, especially during the transformation phase.
● Close Looping – Reaching Back to detractors to win back the lost experience and carrying out root cause analysis for each lost experience acts as a bridge in building back customers' confidence and slowly changing brand perception.
● VOC only through NPS – Take a consolidated view of Social Media Hearing, CRM Analytics, and NPS insights for a robust "Voice of Customer" model.
Net Promoter System is a robust CX Measure; if aligned with Business Goal, it can yield transformational outcomes. Important is how we select the right mix of technology and consulting teams to ensure success at each step of CXM.