Is Net Promoter Score The Key To Customer Loyalty?
Net Promoter Score (NPS), developed by Fred Reichheld in 2003, a partner at marketing firm Bain and Company, is a standard key performance indicator (KPI) to measure customer satisfaction and loyalty.
Since it is straightforward and easy to understand, millions of businesses use it to measure and track how their customers perceive them. NPS scores determine the overall satisfaction and advocacy of a company's products or services.
Calculating NPS Score
The basic idea with NPS is to divide customers into three categories based on their likelihood to promote or not recommend a brand:
- Promoters (score 9-10): These are highly satisfied and loyal customers who will likely recommend the product or service to others. They are considered brand advocates.
- Passives (score 7-8): These customers are somewhat satisfied but not strongly attached to the brand. They may not actively promote it, nor are they likely to discourage others from using it.
- Detractors (score 0-6): Detractors are dissatisfied customers who may actively discourage others from using the product or service due to their negative experiences.
Calculating NPS is done by asking a single question.
"On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?"
The resulting score can range from -100 (if all respondents are detractors) to +100 (if all respondents are promoters).
The NPS formula is rather simple:
NPS = % Promoters - % Detractors
For example, if 70% of respondents are promoters, 20% are passives, and 10% are detractors, the NPS would be 70% - 10% = 60.
What Makes A Good NPS Score?
The NPS score indicates how customers perceive a company's products or services. Let's look at the ranges and what they mean as results:
- NPS > 0: A positive NPS indicates that more customers are promoters than detractors, suggesting the company has healthy customer satisfaction and loyalty.
- NPS between 0 and 30: A score in this range is considered good but indicates room for improvement in customer satisfaction and advocacy.
- NPS between 30 and 70: A score in this range is excellent and suggests that the company has a strong base of loyal customers who are likely to recommend its products or services to others.
- NPS > 70: An NPS score above 70 is exceptional and represents high customer satisfaction and advocacy. A score in this range demonstrates strong customer loyalty and an increased probability of positive recommendations.
The marketing department can collect NPS based on an organization's needs and requirements. Here are a few methods:
- Email surveys
- In-app or website surveys
- Phone interviews
- Point-of-Sale surveys
- In-Person surveys
- Customer feedback forms
- Text messages
There are many ways to analyze the data you would get from NPS, especially if you asked customers to complete a survey alongside the rating.
Some of the analyses you would derive include:
- Customer Loyalty: Businesses can identify delighted customers who are likely to recommend the company's products or services to others.
- Customer Advocacy: Promoters will continue to do business with the company and actively promote it to their friends, family, and colleagues.
- Better Decision-Making: By tracking NPS over time, businesses can identify trends, assess the impact of changes, and make data-driven decisions to improve customer satisfaction and loyalty.
- Competitive Advantage: A high NPS score can differentiate a company from its competitors and act as a positive signal to potential customers.
- Reduced Customer Acquisition Costs: Loyal customers bring in new customers at a lower cost than traditional marketing efforts, reducing marketing budgets.
- Early Detection of Issues: NPS enables timely resolution of dissatisfied customers, preventing them from churning and providing opportunities for service recovery.
In summary, NPS is a valuable indicator for organizations aiming to keep customers happy and build a profitable relationship.
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