The Importance of Measuring Net Promoter Score

October 31, 2017

What’s your Net Promoter Score?

If you don’t know, you should. Really.

Why?

Because Net Promoter Score (or NPS), is a measure of business performance linked directly to growth and long-term success. It’s a metric that senior leaders care deeply about.

And it’s a number you can directly influence.

If NPS isn’t something you currently track, below is a guide to what NPS is, how it works, why it’s so vital, how to measure it, what to do with it and more.

What is Net Promoter Score?

Net Promoter Score (NPS) is a measure of how likely a customer is to recommend a company’s products or services.

Customers are asked: On a scale of 0 to 10, how likely are you to recommend Company A’s product or service to a friend or a colleague?

The responses are then pooled into 3 sections:

0-6 = Detractors - unlikely to purchase the product again, and may actually damage the brand’s reputation.

7-8 = Passives - not so dissatisfied as to bad-mouth the brand, but not satisfied enough to actually recommend it.

9-10 = Promoters - brand evangelists who repeatedly buy the product or service, and are extremely likely to recommend it to people.

This gives the ‘raw’ data from which the NPS can be calculated. To get the NPS, you must subtract the percentage of detractors from the percentage of promoters.

You then have an NPS: an index ranging from -100 to 100, typically expressed as a percentage.

NB - passives are left out of the calculation.

You’ll note that with only 9 and 10s considered ‘Promoters’, it’s a high bar to enjoy strong NPS, so brands with a great NPS are understandably proud of this achievement.

Why is NPS important?

There are three major reasons why businesses around the world focus on and track NPS.

#1: A trusted metric

The first thing to note is that NPS is a robust and trusted metric.

It has its roots in a rigorous study undertaken by Fred Reicheld, with the assistance of Satmetrix, a company that develops software to collect and analyse real-time customer feedback, and respected global consultancy Bain and Co.

In the study, they asked 20 questions to customers from 6 industries, and, Reicheld writes in his Harvard Business Review article, The One Number You Need To Grow:

‘We then obtained a purchase history for each person surveyed and asked those people to name specific instances in which they had referred someone else to the company in question’.

The study actually linked purchases to promotions. They found the most effective question on their tests to be what we now deem the cornerstone of NPS:

“How likely is it that you would recommend [company X] to a friend or colleague?”

#2: Brand loyalty

As the Temkin Insight Group demonstrate through their research on the Economics of NPS, there is a strong correlation between NPS and brand loyalty.

In their research, which spans 20 industries, the Temkin Insight Group found that 67% of Promoters would be ‘very likely to forgive the company if it makes a mistake’, and 92% of Promoters are ‘very likely to repurchase from company’.

Take, for example, Rackspace - a cloud computing company, and a client of Bain & Co.. The CEO, Lanham Napier, says that what distinguishes the company is the ‘Fanatical Support’ they get from their customers. The way they manage and measure this? Net Promoter Score. Napier says:

Promoters recommend Rackspace to their friends, becoming an extension of our salesforce. Customers who are promoters are also more profitable, staying with us longer and buying more of our services…. The creation of loyal promoters not only reduces customer acquisition costs, it improves retention rates and inspires Rackers [employees]. We have witnessed these results firsthand.

#3: Growth

As the title of the inaugural article on NPS would suggest (The One Number You Need To Grow), NPS is key to growth.

The research team plotted NPS against growth rate.

‘In airlines, for example, a strong correlation existed between net-promoter figures and a company’s average growth rate over the three-year period from 1999 to 2002. Remarkably, this one simple statistic seemed to explain the relative growth rates across the entire industry; that is, no airline has found a way to increase growth without improving its ratio of promoters to detractors.’

This was reflected in ‘almost every industry’ examined.

How to measure and track NPS

Asking the question is one thing, but making sure you ask it at the right time, and follow it up with the right questions, is essential.

As Shep Hyken, best selling-author and customer service and experience expert, writes in Forbes:

‘It’s not about the most recent experience. It’s about the overall experience. Use the NPS question in the right place, at the right time and for the right reason.’

So, if the company has had some bad press recently, maybe don’t ask people how likely they’d be to recommend you - unless what you want is a measure of the damage caused by the incident.

The Net Promoter Score is important, but understanding why people have given a certain score is more important. It is essential to ask follow up questions, such as:

‘Why did you choose this score?’ And ‘What could we do better?’

Only with that information can you begin to understand what the company is doing well, and how you can improve. Focusing on the positives is important, as Bruce Temkin says:

‘By focusing on what causes promoters, you will get the opportunity to engage the organization in uplifting discussions – instead of just beating the drum about what’s broken.”

What to do with the results

Rob Markey and Fred Reichheld stress the importance of ‘closing the loop’.

In other words, the feedback must be responded to in a productive manner. That can happen when the relevant team in your company is notified and given responsibility to act.

A survey could reveal that customer service is a big problem. Sitting on that information is useless, and it is essential to create a dialogue with the customer service team, with a follow up scheduled to see what actions have been taken to solve the issue.

Temkin says that there are in fact four loops that need to be created:

  • Immediate Response. Reach out to the customer.
  • Corrective Action. Get the manager or employee to help fix the immediate problem.
  • Continuous Improvement. Create new process to avoid the mistake happening
  • Strategic Change. Change the way the company operates to eliminate the chance of the fault reoccurring.

Such movements can create an employee-centric company. Starting with the employee will feed better customer service, as Markey and Reicheld say:

‘Energized, motivated people are more likely to put in the extra discretionary effort that can raise productivity and create superior experiences for customers [...] Employees need to see the fundamental connection between the work they do every day and its impact on customers.’

Closing the loop is how this begins - it creates customer involvement, and breads motivation.

Trends in NPS

The real power of NPS as a business metric comes from tracking it over time.

As touched on earlier, if you happen to take NPS just once a year or even once a quarter, there are too many variables around the timing of the survey that may impact results, which are not necessarily reflective of your true business performance.

Instead, you should track it on a monthly basis, and then see how it trends up or down over time. This will provide a truer reflection of your customers’ sentiment towards your brand.

It also helps provide earlier warning signs. For example if you’r trending down three months in a row, you can spot that pretty quickly and start to take corrective measures. If you only track NPS quarterly, it will be 3 quarters - 3x longer! - until you spot the trend, by which time your competitors may already be making inroads into your market share and stealing customers.

Competitive NPS

Tracking your own NPS has become a standard ‘best practice’ for businesses.

However what’s often missed is the tracking of competitors’ NPS. Why?

Because it isn’t as easy. You can measure your own NPS by emailing a survey to a selection of your database each month; how can you do the same for your competitors without their data?

This is where a platform like Attest can really help you go above and beyond, by letting you reach consumers of competitor brands.

This way you’ll start to see interesting trends emerge that you can use to your strategic advantage. For example, is their NPS declining month-on-month? And why, what is it that consumers are no longer as happy about? This presents the perfect opportunity to step in and do a better job.

Alternatively you may notice a new market entrant’s NPS continue to rise (along with their brand awareness), which indicates a clear market threat. Again, you’ll be able to understand why consumers are so happy with this new competitor...so you can take reactive measures before it’s too late.

NPS in the boardroom

We started off by looking at the importance of measuring Net Promoter Score, and we’ve looked at several reasons why it’s become such a prominent business metric.

What you may not be aware of, is that it’s also the language of shareholders, boardrooms and c-level executives.

Just skim through a listed company’s annual investor report, and you’ll see that they track and report on NPS as a way of tracking their customer experience; celebrating when NPS has increased, while explaining how they will mitigate the threat of eroding brand confidence if NPS has declined.

If you want to align your focus with that of shareholders and your most senior stakeholders, then you too should be tracking your Net Promoter Score, and learning what the drivers are behind any changes to it, so you know how to improve it.

Conclusion

NPS is a vital tool that every CEO and senior leader should be measuring, and every person in the business should be aware of. The importance of it cannot be overestimated.

All of our Brand Intelligence products include NPS measurement for your brand and your key competitors; while also diving deeper with the qualitative questions that will help you to actively manage and maximise your score.

When NPS is tied so closely to growth and overall business performance, can you afford not to track it?

Talk to us about getting started today.

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