The best way to acquire new customers is through recommendations. The Net Promoter Score or Net Promoter System measures these recommendations. In many industries, you can use this metric to compare your customers’ brand loyalty against those of your competitors’ customers.
NPS is not just a simple metric. It is an effective method of running a business. In this article, you will learn the strategic overview of NPS and understand its many advantages through case studies from brands like Symantec, Slack, Optus, and Allianz.
What is the Net Promoter Score?
Reichheld, together with a Bain team launched a research project. They wanted to determine what method would give them the best results when measuring a consumer’s brand loyalty. It took them two years to find one question that worked best for most industries:
“What is the likelihood that you would recommend Company X [or Product X] to a friend or colleague?”
This question has a rating scale of 0 to 10 for respondents to answer. With 10 being extremely likely to recommend and 0 being not at all likely.
The Three Categories of Customers
Based on the results of this scale, customers are classified into three categories:
Promoters are respondents who give a 9 or 10 score. They love the products or services that the company offers. They are typical repeat buyers who recommend the company’s products or services to others.
Passives are respondents who give a 7 or 8 score. They are somewhat satisfied with the products or services of the company. However, they could easily switch to a competitor that has a better offer. They probably won’t spread anything negative about the company and its offerings but they are also not enthusiastic enough to promote the company’s products or services.
Detractors are respondents who give a 0 to 6 score. They are not happy with the company and its products or services. They most likely won’t purchase again from the company. It is also highly probable they would tell others about their negative experience. Consequently, this could potentially damage the reputation of the company.
How do you calculate NPS?
You get the Net Promoter Score or NPS by subtracting the percentage of detractors from the percentage of promoters:
The Net Promoter Score can range from -100 (if all customers are detractors) to 100 (if all customers are promoters).
The Bain team found that NPS leaders on average grew more than double the rate of their competitors. This is what they found even though the compiled scores came from leading companies that varied widely by industry.
When you get a high net promoter score, your company has earned more promoters than detractors. But how should you interpret your NPS? How will you set goals for further improvement?
You need to perform an effective Net Promoter Score Analysis. First, you need to know what type of Net Promoter Score you have.
The Three Kinds of Net Promoter Scores
According to Bain and Company, there are three types of Net Promoter Scores:
1. Competitive Benchmark
This is when the company seeks feedback from their own customers and the customers of their competitors. This score provides an objective method for comparing your own feedback to that of your competitors’. You can easily prioritize and set the goals of the company based on data gathered.
2. Customer relationship
This score involves being in regular contact with a sample of your own customers. You ask them how likely they would recommend your product or service and why. Feedback gathered will help the company assess its relationship with customers. Data gathered can help make decisions on how to improve products/services, marketing, servicing, pricing, etc.
This involves asking feedback from the company’s own customers after selected experiences or transactions. For example, asking feedback after the purchase of a product or service. Feedback gathered will help the company understand how that particular experience influenced the customer’s overall loyalty. This can help the company improve the customer’s experience further.
A company learns what customers are thinking about their relationship with all businesses they interact with when they have competitive benchmark NPS. This score is not limited to customers’ interaction with one company. This score shows a company how well it is doing compared to all its competitors in the industry.
Experience and customer relationship, on the other hand, focus on the company’s continuous improvement.
What are the benefits of NPS?
1. It is a simplified survey
Customers are not burdened with too many questions. The NPS survey usually requires just two questions: one is an open-ended question and the other is a Likert-type scale. In addition, the question regarding the customer’s likelihood to recommend the product or service is scored using a simple 0 to 10 scale. The Net Promoter Score can be broken down by store, by product or by individual customer service representative.
2. It is easy to use
NPS surveys can be done through different channels – by phone, by chat or through email. Scores are gathered and posted quickly. Furthermore, these surveys can share the most recent customer comments with company managers and employees.
3. It enables quick follow-up with customers
Customer feedback can be shared quickly. When a company receives unfavorable feedback from customers, it can quickly instruct managers and employees to contact detractors. By doing so, they are able to identify their concerns and resolve problems whenever possible.
4. More companies are using NPS
The number of companies using NPS has steadily increased since 2003. NPS practitioners have developed successful systems based on Net Promoter principles. Once developed, they adapt these systems to their businesses. Many practitioners participate in the NPS Loyalty Forum where they share their experiences to help others improve their business.
5. It is adaptable
NPS does not require high-priced third-party vendors to make it work. It is an open-source method that can be used in a wide range of business settings. NPS can measure customer loyalty after launching a new product, after servicing calls, or after a company merger.
How can NPS data help businesses?
Some business leaders are skeptical about the effectivity of NPS. In fact, you can expect opposition if you want your organization to adopt NPS before implementing any changes.
Is NPS effective? Yes, NPS is effective and the best way to prove this is to show NPS Success Stories and Case Studies.
1. NPS can help reduce costs
Symantec provides software for protecting technology infrastructure, data, and communications. The software addresses security risks as well as risks to compliance, performance, and availability. It operates in over 40 countries, has more than 50 million customers and more than $4 billion in revenue.
Before adopting NPS, each department had its own metrics. However, the metrics did not help improve customer loyalty. Symantec adopted NPS in 2004. It deployed NPS in the Consumer Business Unit (CBU). This unit is responsible for developing and marketing its Norton products which represent more than 30% of the company’s revenue.
After introducing NPS, the CBU achieved more than 50% increase in NPS for its Norton Internet Security and Antivirus product lines. Other impressive results are:
- A 13-point improvement in satisfaction scores for Support.
- Support also achieved a 10 to 12% reduction in call times.
- Agents are now able to handle an average of 1.6 customers at a time.
- A 30% reduction in support costs which was reinvested in the customer experience.
- A significant increase in the number of positive reviews and awards around the world.
To this day, NPS is deeply integrated into Symantec’s business. The organization continues its commitment to creating a customer-centric culture.
2. NPS enhances the organization’s interactions with existing and prospective customers
Slack CMO Bill Macaitis calls NPS a “leading indicator of future growth.”
Macaitis describes Slack as “a messaging app for teams.” The purpose of the app is to bring together all of a team’s communications in one place.
According to Macaitis, as the number of advocates for your product increases, customer acquisition costs for the company decreases. Consequently, your customer success team will be more effective. All CEOs should be able to answer the question, “What are the top 3 reasons why people recommend and not recommend your brand?”
Macaitis uses NPS to refine all interactions that existing and prospective customers have with Slack. Prospects signing up for Slack, or becoming paying customers, is not enough. The important thing is whether or not these customers will recommend the company’s product.
As a result, Slack gained a $1 billion valuation in just one year through word-of-mouth promotion tracked by NPS.
3. NPS helps reduce churn
Optus is a major telecommunications company in Australia.
During the last quarter of 2013, the company posted a net profit of $227 million. This meant a 41% increase against the last quarter of 2012. The number of customers on its 4G network increased more than 30% to 1.8 million.
According to Kevin Russell, Optus’ country chief officer at the time, when they adopted NPS, there was a six-point increase in its NPS over the December 2013 quarter. There was also a 50% decrease in the number of complaints to the industry ombudsman.
The company reports that improved customer experience is reflected “in a reduction in mobile postpaid retail churn to 1.4 percent.”
4. There is a link between NPS and organic growth
Allianz is an international financial services provider based in Germany.
When Allianz adopted NPS, there was a high customer acceptance of the survey. 91% participated in the NPS survey and 85% accepted a feedback call from an Allianz employee.
The company implemented a bottom-up NPS complemented by service recovery. The goal of Allianz was to turn detractors into promoters.
Allianz found that operating units with a high NPS had a higher overall CAGR (compound annual growth rate) compared to units with lower overall NPS scores:
NPS has been proven to be an effective way of measuring customer satisfaction. It is simple and easy to use. But gathering data is just the first part of the process. These companies have become successful in its NPS implementation because of how they have used data to improve their products and services. They have also used NPS data to develop marketing methods focused on improving customer experience.
Want to match Slack’s viral growth?
What are the top 3 reasons why people recommend and not recommend your brand?
If you don’t know the answer to this question, you need to start using Net Promoter Score today.