Net Promoter Score (NPS)
The Net Promoter Score (NPS) is something you have probably heard about. And it still seem to be discussed as the salvation to every customer feed back program presented. But what is it really?
By its developers, it is said to be the result of two years of research and several thousand interviews with customers in different industries. The claim is that one simple question – in most industries – is tightly linked to any company’s actual growth rate. That one question, answered by the company’s customers, is:
-“How likely is it that you would recommend our company to a friend or a colleague?”
The logic: the more promoters you have, and the more enthusiastic they are, the bigger the chance of company revenue growth. Hence, a large portion of truly evangelistic customers is a fantastic asset. But only when its share of the total customer base is larger than the detractors.
The Net Promoter Score Scale
On a scale from 1-10, where 10 is “extremely likely” and 1 is “not at all likely” it is only the customers that choose nine to ten (9-10) that counts as “promoters”. Even a rating at as much as seven to eight (7-8), i.e. still fairly likely that the customer would recommend the company to a friend or a colleague, doesn’t correlate with growth. That bunch of customers are by the way defined as “passives” (e.g. not active evangelists). The “detractors” on the other side, will not likely recommend the company at all, and even bad-mouth it.
The higher the number of promoters vs the number of detractors and passives, the higher the company growth. The one number you need to grow is hence the “net promoter score”, which is the ratio of promoters to detractors. As simple as that.
Why is then this willingness to promote a company such a strong contributor to growth? In short it can be seen as the ultimate act of loyalty, where the individual – the customer – puts his or her own reputation on the line. Or as Frederick Reichheld put it in the HBR article:
-“Evangelistic customer loyalty is clearly one of the most important drivers of growth. While it doesn’t guarantee growth, in general profitable growth can’t be achieved without it.”
You can read more about the results and the underlying research in the Harvard Business Review article: The One Number You Need to Grow, by Frederick Reichheld. You can also join the Net Promoter Community to learn best practices, make connections and share experiences, and even get your own Net Promoter certification.
If you are of a bit more critical nature, you will however also pay attention to the many critical voices risen about the concept, by both academics and market research specialists.
As one critic say that: -“The debate on NPS has been rumbling ever since Reichheld claimed in a 2003 Harvard Business Review article that the simple measure of consumer recommendations was an accurate predictor of revenue growth. It has continued in the wake of his bestselling book The Ultimate Question. But Reichheld’s claim to have come up with ‘the single most reliable indicator of a company’s ability to grow’ is – according to Keiningham and a team of experts who set out to replicate Reichheld’s methodology – nonsense, based on bad research.” Read the full article here. A fast Google search also balances the picture vs Reichhelds original claim and approach.
Our conclusions: the NPS is not the salvation to every customer feed back program, but it can be treated as one part of the puzzle.