Everything You Need to Know About Net Promoter Score

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Everything You Need to Know About Net Promoter Score

Everything You Need to Know About Net Promoter Score

Customer satisfaction is a crucial component of any business, and there is a simple way to measure it: Net Promoter Score.

Higher satisfaction levels strengthen brand reputations, increase customer retention rates, and raise lifetime customer values. Satisfied customers spend 140% more than unhappy customers, and one bad customer experience can lead to 61% of people switching to a competitor.

Companies clearly need an understanding of customer satisfaction levels, and in Net Promoter Score (NPS) they have found a concise yet powerful metric. By distilling customer feedback into a single question, NPS is easy to administer and can provide a measure of satisfaction at each point of interaction between brand and customer.

However, NPS is not without its criticisms and limitations. Its simplicity overlooks key factors in the customer experience, and it must be used in conjunction with other tools and strategies in order to make meaningful improvements in customer sentiment.

This article will explain what NPS is, how it’s calculated, its limitations, and the steps that businesses can take to improve their Net Promoter Score.

What Is Net Promoter Score?

Net Promoter Scores are derived from NPS reviews, originated by Fred Reichheld and his team at Bain & Company. The researchers interviewed thousands of people across different market sectors with the aim of simplifying customer satisfaction surveys.     

They discovered that one question worked best for most mature, competitive industries in providing an indication of customer lifetime value:

“On a scale of 0-10, how likely are you to recommend Company X to a friend or colleague?”

NPS surveys can be distributed to customers in a variety of ways, including email, in-app or in-product surveys, text message/SMS, in-store kiosks, and websites.

Based on the score that customers submit, they are divided into three categories:

Promoters Score 9-10

This group is the most likely to spend more money at your store, be loyal customers, and recommend your business to their family and friends.

Passives Score 7-8

These customers are currently satisfied, but could be tempted to switch to one of your competitors.

Detractors Score 6 or lower

Unhappy customers who are dissatisfied with their experience, much more susceptible to churn, and more likely to spread negative word of mouth.

NPS is calculated by simply subtracting your detractor score from your promoter score. This leaves you with a value between 100 and -100: your Net Promoter Score. As passive scores represent customers who will neither encourage or discourage people from shopping with your brand in the future, this group is essentially ignored and their scores are excluded from the calculation. 

Sum

The simplicity of the measure has led to its widespread use as an indication of customer loyalty. Improved NPS scores have also proven to be in direct correlation with increased revenues. Research from CustomerGauge claims that a 10 point increase in NPS strongly correlates with up-sales revenue growth of 3.2%.  

What Is a Good Net Promoter Score?

Bain & Company provide a common guide as a means of interpreting NPS: 

Good NPS

That said, a ‘good’ NPS result should always be judged in relation to industry averages. Where a score of 40 would be a source of concern for a smartphone producer, the same score for a hotel chain would represent best-in-class performance. 

2022 Satmetrix NPS Benchmarks

Related Read how Mystery Shopping Agencies can raise Net Promoter Scores.

What Are the Limitations of Net Promoter Score?

While NPS may be easy to implement and understand, as a metric it has considerable limitations, and the data it provides should carry qualifications.  

Limited context

The data a company receives from conducting an NPS survey is purely quantitative. Customers leave a score of 0-10 without providing any context or explanation for their score. Additional qualitative research is required to identify the areas a company needs to improve, and the actionable insights that will drive this improvement. 

NPS is a good starting point for identifying whether improvement is required,
but not what improvement is required.

Delays

Typically, there is a delay between the point a customer makes a purchase and the point at which they submit their feedback. This can compromise the accuracy of the data. 

Relying on the memory of customers to recall how they felt at the time of purchase, rather than questioning them at that specific moment, opens up NPS to questions of legitimacy.

Sample size

Another issue regarding the format of NPS is that response rates can vary significantly across different survey methods.  

Survey Method

Email surveys elicit a response rate of 15-25%, meaning three quarters of your customers will not provide you with feedback. As a result, your NPS respondents will only represent a portion of your overall market, and you lose the majority of your audience feedback. 

Dealing in extremes

The customers who will take the time to give feedback are usually motivated by extremes of experience. This means that any survey will be populated with responses from people who have either had a very good or very bad experience. 

Response rates are far lower from those customers whose experience was OK, but not worth taking the time to report. When this is translated to NPS, it can give you a picture of your customer satisfaction that is unrepresentative of the actual situation.

Non-buying consumers

NPS surveys are only compiled by customers who have completed a sale with a company. There is no feedback from the people who decided against making a purchase. 

These people are – arguably – the most important when it comes to improving customer experiences. This group of people went into a physical store, or a website, with the intention of making a purchase, and yet something stopped them from completing that transaction.

Any business looking to expand will want to know areas where they are failing to convert sales opportunities, and NPS alone does not provide those types of insights.

Non Buying Consumers

How to Improve Net Promoter Score

As NPS is simply a proxy for customer loyalty and brand advocacy, businesses should focus less on the score itself and more on the factors that inform the score. Here we look at some areas that can have a meaningful impact on customer experience and satisfaction. 

Ingrain CX Into the Business Culture

Ingrain CX into the business culture

Businesses that are able to instill the belief that CX is the responsibility of everyone in the organization, not just customer or client-facing staff, are far more likely to exceed customer expectations. A good example is DoorDash, who in 2021 announced that all of their staff, from the CEO down, would make at least one delivery per month and directly interact with their customers. 

Make it Personal

Make it personal

Consumers now expect personalization as standard, and 78% of shoppers are more likely to make repeated purchases where companies offer personalized services. Loyalty or reward schemes are useful tools that firms can use to produce content and offers that speak to the specific needs of each customer. 

Customer Journey Mapping

Customer journey mapping

Customer Journey Maps take all the interactions between a customer and a company in a typical sales journey, from first becoming aware of a brand to after-sales, and plot them as a visual representation.  By mapping the customer journey this allows businesses to align experiences with consumer expectations at every stage.

Mystery Shopping

Mystery Shopping

Mystery Shopping agencies give businesses the visibility required to identify areas of improvement. They can also provide the reporting tools necessary to monitor the success rate of any measures that are implemented to improve customer satisfaction. 

Improve Complaint Handling

Improve complaint handling

Turn negatives into positives. In situations where a complaint is successfully handled by a customer service department, customers can be happy to forgive brands, and in some cases will actually spend more in the future with that brand. 

Final Thoughts

The use of the Net Promoter System has become so widespread because of its simplicity. It is straightforward to implement, and provides businesses with an easily understandable snapshot of customer loyalty. 

However, businesses tracking their Net Promoter Score should do so alongside other tools and services, in order to gain the more comprehensive understanding required to inform strategic changes. 

NPS data can be enriched and made actionable through the use of focus groups, mystery shopping agencies, back-of-house audits, customer intercepts, and reviews of your hiring process. 

By combining NPS tracking with these tactics, companies can make the meaningful changes required to make consumer experiences more memorable, and ensure that customers come back time and again. 

Looking to improve your company’s customer satisfaction rates? Contact Service Evaluation Concepts today. Our solution analyzes, quantifies and reports on specific interactions in unique businesses. We can support you in providing greater value at every stage of the customer journey, based on actionable insights that matter.

Arcadio Service Evaulation Concepts

Arcadio Roselli

CEO & Managing Director of Service Evaluation Concepts. Dedicated to driving brand experience forward with the tools that ensure the reality in the the customer corridor is aligned with the promoted brand value proposition.