Contents
- What is the Net Promoter Score (NPS)?
- How to measure NPS?
- How to evaluate NPS survey results?
- Why calculate NPS?
- Pros and cons of the metric
- To measure or not to measure NPS?
What is the Net Promoter Score (NPS)?
The Net Promoter Score, known as NPS, is a key metric that reflects customer loyalty to a specific brand. It serves to assess customers' willingness to make repeat purchases and their inclination to recommend the company or product to their acquaintances. In the early 2000s, business consultant Fred Reichheld introduced the term and formula for NPS, after which this metric became an integral part of customer-centric strategies for many companies worldwide.
The essence of defining NPS lies in analyzing responses to a single question: "How likely are you to recommend our company/store/service to your friends or colleagues?" Based on this question, one can determine the level of customer loyalty, which is particularly important for companies aiming to improve their services and strengthen their market position.
How to measure NPS?
To measure NPS, customers are asked to rate the likelihood of recommending the company's services on a scale of 0 to 10. A score of zero indicates no desire to recommend, while a score of 10 indicates a high willingness to recommend. Ratings can be collected through various channels: email surveys, website polls, mobile applications, and even at store checkout counters.
For example, stores like Reebok and Adidas use tablets to survey customers, allowing them to collect real-time data on customer loyalty. Other companies, such as Beeline, often send SMS messages requesting customers to participate in surveys. In some cases, companies are even willing to offer monetary rewards for participating in surveys, which encourages consumers to provide feedback.
How to evaluate NPS survey results?
The results of the NPS survey categorize customers into three groups: promoters (9-10 points), detractors (0-6 points), and neutrals (7-8 points). The NPS index is calculated by subtracting the percentage of detractors from the percentage of promoters. An index above 50% is considered optimal, while a level between 30% and 50% is deemed acceptable. However, it is important to note that these figures may vary across different industries.
It is also crucial to remember that NPS is not the sole criterion for assessing loyalty. For instance, in the banking sector, a negative NPS may be the norm since customers may remain with a bank for a long time, even if they are not very satisfied with the services. Therefore, to increase NPS, it is necessary to regularly conduct surveys to track changes in customer perceptions of the company.
Why calculate NPS?
The NPS index serves as an important indicator of a company's well-being, especially in service sectors such as retail, hospitality, insurance, and transportation. A high NPS attracts investors and strengthens the company's reputation in the market. Research shows that a high level of customer loyalty directly correlates with an increase in repeat purchases, which is particularly important for businesses where the cost of acquiring new customers is significantly higher than the cost of retaining existing ones.
Furthermore, companies with a high NPS can expect growth in revenues from upselling and referrals. Key factors for achieving high customer loyalty include quick responses to feedback, clear NPS goals, and active management of customer experience.
Pros and cons of the metric
The main advantage of the NPS metric lies in its simplicity. To calculate it, one just needs to ask a single question, making surveys efficient and quick. However, there are also disadvantages. For example, companies may face challenges in data collection if the number of survey participants does not meet the necessary level.
Additionally, the NPS score can be unstable due to market changes or shifts in customer behavior. A high NPS score does not always guarantee that customers will remain with the company, as they may switch to competitors under more favorable conditions. Finally, in Russia, consumer satisfaction levels may be higher than in more developed countries, which does not always reflect the actual quality of service.
To measure or not to measure NPS?
For companies focused on developing customer-centricity, the NPS metric can become a key tool for analyzing consumer experience. Brands that actively work to improve customer service and develop feedback channels typically demonstrate higher growth rates.
Nevertheless, it is essential not to limit oneself to a single question about willingness to recommend, but to ask clarifying questions to gain a deeper understanding of customer needs and expectations. It is also advisable to consider other metrics, such as ASCI, CES, and CSat, for a more comprehensive analysis of customer relationships. Ultimately, regular monitoring of NPS will help companies stay aware of consumer trends and respond promptly to potential issues.