The state of Net Promoter Score (NPS)

What is Net Promoter Score (NPS)?

Net Promoter Score (NPS) is a customer loyalty metric that measures how likely customers are to recommend a company's product or service to a friend or colleague. It is calculated by asking customers a single question: "On a scale of 0 to 10, how likely are you to recommend our business to a friend or colleague?"

Customers are then grouped into three categories based on their responses:

Promoters (score 9-10): These are customers who are extremely satisfied with your company and are likely to promote your brand to others.
Passives (score 7-8): These are customers who are satisfied with your company, but they are not likely to go out of their way to recommend you to others.
Detractors (score 0-6): These are customers who are dissatisfied with your company and are likely to spread negative word-of-mouth.

To calculate your NPS, you simply subtract the percentage of Detractors from the percentage of Promoters. For example, if 50% of your customers are Promoters and 10% are Detractors, your NPS would be 40.

Why is NPS Important?

Net Promoter Score (NPS) is a critical metric in modern business strategy for several key reasons:

It is a Predictor of Future Growth: Companies with high NPS scores tend to grow faster than those with low scores. Promoters are more likely to continue doing business with you and to refer your company to others.
It is a Measure of Customer Loyalty: NPS is one of the best ways to measure customer loyalty. Promoters are likely to stick with you even during tough times and are likely to spread positive word-of-mouth.
It Helps Identify Areas for Improvement: NPS feedback can pinpoint areas of excellence and areas that need improvement. This information can guide changes for a better customer experience.
It is a Benchmarkable Metric: NPS is a standard metric used by businesses of all sizes, facilitating benchmarking against other companies in your industry.
It Encourages Continuous Improvement: NPS promotes ongoing enhancement. Companies can track changes in NPS over time, adjusting strategies to enhance customer satisfaction and loyalty.
It Emphasizes Customer-Centric Focus: NPS underscores the importance of customer-centricity, encouraging organizations to prioritize customer needs and experiences.

Overall, NPS is vital because it provides a valuable framework for measuring and improving customer loyalty, driving growth, and maintaining a customer-focused approach in a constantly evolving market.

Here are some real-world examples of how companies have leveraged NPS to enhance their businesses:

Netflix: Uses NPS to track the success of its new content releases, investing in content that receives high NPS scores.
Amazon: Measures the performance of its customer service team through NPS, identifying areas for improvement to enhance customer satisfaction.
Apple: Uses NPS to gauge customer satisfaction with its products and services, known for its high NPS score as a testament to quality and customer experience.

If you are not already using NPS, it is highly recommended to start tracking it today. It is a valuable metric that can help you improve your customer experience and drive business growth.

Pros and Cons of NPS

Pros of NPS:

It is a simple and easy to understand metric. NPS is based on a single question, which makes it easy to calculate and track. It is also easy for employees to understand and use, which can help to promote customer focus throughout the organization.
It is a good predictor of future growth. Studies have shown that companies with higher NPS scores tend to have higher customer retention rates and revenue growth rates. This is because Promoters are more likely to continue doing business with the company and to refer them to others.
It can help to identify areas for improvement. NPS feedback can provide insights into what customers like and dislike about the company and its products or services. This information can then be used to make improvements that will lead to higher customer satisfaction and loyalty.
It is a benchmarkable metric. NPS is used by businesses of all sizes, which makes it easy to compare your performance against other companies in your industry.

Cons of NPS:

It is a single-question metric. This means that it does not provide much context or detail about the customer experience. For example, if a customer gives you a low NPS score, you do not know why they gave you that score. To get more context, you need to ask additional questions.
It is susceptible to bias. NPS scores can be biased by factors such as the customer's mood, the time of day, and the way the question is asked. It is important to take these factors into account when interpreting your NPS scores.
It can be difficult to improve. Once a customer has become a Detractor, it can be difficult to win them back. This is why it is important to focus on keeping your Promoters happy and preventing your Passives from becoming Detractors.

Overall, NPS is a valuable metric that can help you to improve your customer experience, increase customer loyalty, and grow your business. However, it is important to be aware of the limitations of NPS and to use it in conjunction with other metrics to get a complete picture of the customer experience.

Here are some tips for using NPS effectively:

Track your NPS score over time. This will help you to see how your customer satisfaction levels are changing over time.
Compare your NPS score to other companies in your industry. This will help you to see how you are performing relative to your competitors.
Use NPS feedback to identify areas for improvement. Ask your Promoters what they like about your company and your Passives and Detractors what they dislike.
Take action to improve your customer experience. Use the feedback you receive from your customers to make changes that will lead to higher customer satisfaction and loyalty.

By following these tips, you can use NPS to improve your customer experience and grow your business.

The History of Net Promoter Score (NPS)

The history of Net Promoter Score (NPS) dates back to 1993 when Fred Reichheld, a Bain & Company consultant, published a paper called "The One Number You Need to Grow." In the paper, Reichheld argued that customer loyalty is the key to business growth, and that NPS is the best way to measure customer loyalty.

Reichheld defined NPS as the percentage of customers who are likely to recommend a company to a friend or colleague. He argued that NPS is a leading indicator of future growth because Promoters are more likely to continue doing business with the company and to refer them to others.

Reichheld's paper was well-received, and NPS quickly became a popular metric for measuring customer loyalty. Today, NPS is used by businesses of all sizes, from startups to Fortune 500 companies.

Here are some key milestones in the history of NPS:

Fred Reichheld publishes his paper "The One Number You Need to Grow," which introduces the concept of NPS.
Bain & Company launches the Net Promoter Network, a community of businesses committed to using NPS to improve their customer experience.
Reichheld publishes his book "The Ultimate Question: Driving Good Profits and True Growth," providing a more in-depth look at NPS and its use in improving business performance.
NPS is adopted by the American Customer Satisfaction Index (ACSI) as a standard metric for measuring customer loyalty.
The Net Promoter System (NPS) is introduced by Bain & Company. The NPS is a framework for using NPS to improve the customer experience and drive business growth.

Today, NPS is one of the most widely used metrics for measuring customer loyalty, employed by businesses of all sizes and industries around the world.

NPS has had a significant impact on the way businesses measure and manage customer loyalty, emphasizing the importance of customer satisfaction and its effect on business growth.

NPS is a valuable tool for any business serious about improving its customer experience and growing its business.

Why NPS Became Popular

Net Promoter Score (NPS) became popular because it is a simple yet effective way to measure customer loyalty and a leading indicator of future growth. Here are some key reasons why NPS gained popularity:

Simple to Understand and Use: NPS is based on a single question, making it easy to calculate and track. It's also easy for employees to understand and use, promoting customer focus throughout the organization.
Good Predictor of Future Growth: Companies with higher NPS scores tend to have higher customer retention rates and revenue growth rates. Promoters are more likely to continue doing business with the company and refer it to others.
Identifies Areas for Improvement: NPS feedback provides insights into customer preferences and dislikes, allowing for targeted improvements that enhance customer satisfaction and loyalty.
Benchmarkable Metric: NPS is widely used across businesses of all sizes, facilitating performance comparison with other companies in the same industry.

Additionally, NPS gained popularity due to promotion by Bain & Company, a leading management consulting firm. Bain & Company published articles and books about NPS, assisting businesses in implementing NPS programs.

As a result of Bain & Company's promotion, NPS quickly became a widely adopted metric for measuring customer loyalty. Today, it is utilized by businesses of all sizes and industries worldwide.

Here are some examples of well-known companies that use NPS:

Amazon
Apple
Costco
Google
Netflix
Southwest Airlines
Tesla
USAA

If you are not already using NPS, I encourage you to start tracking it today. It is a valuable tool that can help you improve your customer experience, increase customer loyalty, and grow your business.

Stories of NPS Implementation

Here are some stories about how companies have used Net Promoter Score (NPS) to improve their businesses:

Netflix: Netflix uses NPS to track the success of its new content releases. If a new movie or TV show has a high NPS score, Netflix knows that it is likely to be popular with its customers and will invest in more of that type of content.
Amazon: Amazon uses NPS to measure the performance of its customer service team. If an Amazon customer has a negative experience with customer service, they are more likely to become a Detractor. By tracking NPS, Amazon can identify areas where its customer service team needs to improve.
Apple: Apple uses NPS to measure the satisfaction of its customers with its products and services. Apple is known for its high NPS score, which is a testament to the quality of its products and the customer experience it provides.
Southwest Airlines: Southwest Airlines uses NPS to track the satisfaction of its employees. Southwest Airlines believes that happy employees lead to happy customers. By tracking NPS, Southwest Airlines can identify areas where it can improve its employee experience.

These are just a few examples of how companies have used NPS to improve their businesses. NPS is a valuable tool that can help any business to improve its customer experience, increase customer loyalty, and grow its business.