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Net Promoter Score (NPS)

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Why companies are widely using Net Promoter Score (NPS) across the world?
Date :10-Apr-2019

Last week, when I was reading the article named “One number you need to grow” by Frederick F. Reichheld (issued in HBR, Dec. 2003); Reichheld proposed that it was a simple, practical and easy way to categorize customers on a single question, which was phrase like this:

“On a scale of 0 to 10, how like likely you recommend us (or this service/product/brand) to a friend or colleague?”

The Net Promoter Score (NPS) is a tool to measure the loyalty/customer experience and predicts business growth. It is calculated by number of people who are positive about a brand/service/company (promoters) minus the number of people who are negative (detractors), a score that is theoretically range from a low of -100 to a high of 100. The score is computed as shown in figure below:

The three groups were as follows:

Detractor: Detractors are those respondents who rate the brand/service/company a 6 or below on the scale of 0 to 10 as they are unsatisfied customers who are unlikely to recommend the brand or service and may spread badly mouthed the company to their friends or colleagues.

Passive: Those respondents who provide the rating of 7 or 8 on the scale of 0 to 10. These customers are passively satisfied customers, as they might recommend the company. However, they could easily distract to a competitor because of promotions or discounts.

Promoters: Promoters are those respondents who provide a rating of 9 or 10 on a scale of 0 to 10. As they are the brand advocates that they strongly recommend the brand. They behave like loyal customers, usually making supplying the significant share of their spending or making repeat purchases.

The best possible score is 100 (everyone is promoter) and the worst possible score is -100 (everyone is distracter). An NPS of 0 is a poor, 20 is quite typical and 30+ is good.

Companies really feel the taste, why respondents have mentioned these ratings. The next question followed by NPS would be open ended question, which enable the companies to hear the responses in their own words, why respondents have said so.

NPS is acknowledged as a metric guiding growth as customer promote more, buy more and stayed longer with the brands. Companies that want to generate good profits can use NPS to hear the customers and fix the problems and create more and more delight.

Since, the publication of the Harvard Business Review article and next the book named ‘The ultimate question’, NPS is widely adopted and become most popular metric across the globe.

Without any doubt, NPS has truly been helpful in many ways. It has brought more and more attention in importance of the customer in growing a business. It has also bought more attention on the power of positive or negative word of mouth (WOM).

Is NPS score accurate or not?

A scale of 0 to 10 appears to be widespread and provide great deal of accuracy and precision. But, if we go deeper actually NPS used a three-point scale, if you see 0 to 6 are detractors, 7 & 8 are passives, and 9 & 10 are promoters. In the real world, the difference between 4 and 5 is the same as the difference between 5 and 5=6. But, under the NPS scale there is no difference between 4 and a 5, since both are considered to be detractors, but there is a difference between 6 and a 7 because 6 is a detractor and 7 is a passive. If we calculate Margin of error, almost it falls outside the range of statistical confidence.

Post research actions

Customer satisfaction and loyalty are useful only if it drives action. Companies must ensure that customer satisfaction and loyalty surveys do not gather dust.

  • Set targets on how much to improve on specific attributes.
  • Develop an action plan.
  • Understand the customer profile of promoters and detractors.
  • Use NPS as a customer perception of your brand
  • Add open end question (why) after rating question to understand the respondent perception about brand/service which will enable the growth opportunity.

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