The Net Promoter Score (NPS®) is the percentage of customers who would recommend you to their family, friends, or business colleagues. This metric was introduced in 2003 in an article published in the Harvard Business Review and has since been adopted by Fortune 500 companies and small businesses alike.
The popularity of the metric is based on its ability to predict customer loyalty and measures company performance through the eyes of its customers. Analysis by Bain has shown that sustained value creators, companies that have acquired a long-term profitable growth, have an NPS that is twice the value of competitors.
To accurately find the NPS, you must first ask the question, “How likely is it that you would recommend our company/product/service to a friend or colleague?”. The respondents are asked to reply on a scale of 0 to 10. The NPS is the percentage of customers who are promoters (those scoring a 9 or 10) subtracted by the percentage of detractors (those scoring 0 to 6). Those scoring 7 or 8 are considered passive and their responses are discarded.
How the Scoring Works
Responses are divided into three groups, each group is characterized by different attitudes and their varying behaviors are linked to economic value.
Promoters (9 to 10)
These are the most committed, loyal, and diehard fans of the company. They always help advertise the company to their friends and colleagues. They are far more likely to remain customers and will increase revenue over time. This category accounts for over 80% of referrals.
Passives (7 or 8)
These people are passively satisfied. In other words, they are satisfied for the moment. Their repurchase and referral rates are up to 50% lower than promoters. If your competitor’s ad or offer appeals to them, they are likely to defect
Detractors (0 to 6)
This group of people are very unhappy with your company. They are the source of more than 80% of negative word of mouth and are most likely to defect. While their purchases are profitable from an accounting standpoint, from an overall company perspective their criticism and dislike mar the company or brand image, thereby reducing the chances of getting new customers. They also have a negative impact on employee morale.
The Net Promoter System is more than a score. The Net Promoter System asks customers the reasons behind their ratings using an unstructured, open-ended question. This provides insight into customer thinking. Management can use this feedback to address all customer related issues and also as a tool for creating innovative approaches to creating more promoters. By improving customer experience along with internal processes, products, and prices the company is better positioned for long term growth.