What does Net Promoter Score mean, and why should you measure it?
Blog: NASSCOM Official Blog
How would you determine the health of your customers? By using some metric. Isn’t it? But it might be confusing at times to use which metric as there are numerous customer experience metrics available in the market. And you might also be thinking which metric to use?
One specific and simple to use metric that can help you understand your customers better — NPS or Net Promoter Score. The metric is used by almost every business worldwide to measure customer loyalty while giving you an overview of a customer’s experience. For instance, by looking at NPS scores, you can quickly identify your loyal customers that are responsible for an increase in numbers of promoters. You can review their feedback to know why they love your brand. The details are further used to create effective loyalty programs that will help in customer retention and increase customer lifetime value.
Let’s dig into more to understand net promoter, why it’s important, and how to measure it?
History of Net Promoter Score
It’s the most commonly used customer loyalty metric created in 2003 by Fred Reichheld, Bain & Company, and Satmetrix. The objective of this metric is to get an overview of the company’s performance from the customer’s perspective.
How can it be used?
NPS is a powerful indicator that can be combined with other customer satisfaction metrics to capture customer’s insights. It gauges customer loyalty and satisfaction by conducting a short NPS survey.
How to Calculate NPS or Net Promoter Score?
NPS is calculated based on the responses received by asking a single question, followed by an open-ended question.
“On a scale of 0-10, how likely would you recommend our products/services/brand to your friends and family.”
Customers can choose a rating anywhere between 0-10 (where 0 is not at all likely and 10 being extremely likely).
The customers are divided into 3 categories – Promoters, Passives, and Detractors, based on the scores received.
According to Satmetrix, the categories can be defined as:
- Promoters — They are those customers who would select a 9 or 10 rating. They are your loyal customers who will help your business grow and will eventually become brand evangelists
- Passives — They are those customers who would select a 7 or 8 rating. They are somewhat satisfied with your brand but might switch to your competitors
- Detractors — They are those customers who would select a rating between 0-6. They are unhappy customers who would try to damage your brand reputation by spreading negative word of mouth
Formula to Calculate Net Promoter Score
%promoters — %detractors = Net Promoter Score
where %promoters = (Total number of promoters/number of respondents) x 100
%detractors = (Total number of detractors/number of respondents) x 100
NPS score can be anywhere between -100 to 100. A score between 50-80 is considered to be a good score that reflects business growth.
Why should you measure NPS?
NPS is one of the simplest yet user-friendly customer feedback tools. Companies ranging from small, mid, to large scale or even startups prefer to use NPS because it plays a crucial role in enhancing customer experience over a specified time period. Some other benefits of using NPS are:
1. It measures Customer Loyalty
What is the one factor that can influence a customer’s decision to invest in a Brand? It’s customer loyalty. There’s no hidden fact that customers keep coming back and buying from a brand to which they are loyal. But there are two main issues with Customer Loyalty:
- It’s hard to measure
- It keeps on fluctuating
To address these two challenges, the best solution is to measure numerous data points.
- Repeat Purchases: the number of times a customer returns and buys a product from your business
- Average Order Value: on an average how much a customer spends when they visit your website or store
- Churn Rate: the percentage of customers who stops doing business with you or cancel a subscription over a specified time period
Measuring NPS at constant intervals will keep a pulse on your customers and determine the likelihood of your current customers, referring it to other people.
2. It measures Word of Mouth traffic
What is the first thing we do before going to a new brand? We ask reviews from our friends and family. With the help of NPS, we can figure out the traffic coming via word-of-mouth that is important for any business growth.
Word-of-mouth plays a vital role in different parts of the buyer’s journey. When you discover that 8 out of 10 people are influenced by their network, you need to make every possible effort to create a positive experience to make your brand memorable.
There’s no specific metric developed to quantify word-of-mouth traffic. But, using NPS can help you gauge word-of-mouth performance. Adding more promoters can result in more word-of-mouth traffic.
3. It helps in identifying areas for product improvement
How would you know whether your newly developed product or newly added feature is performing well or lacks something? This is why collecting real-time Customer Feedback is important.
Tracking NPS will help you view the positive as well as negative impacts and make the necessary modifications. NPS survey consists of a quantitative and qualitative question that is used to capture in-depth customer insights. For instance, in case of a bad rating, customers would be able to express their views on the issue they faced with your products/services.
4. It’s user-friendly and easy to conduct
Why do most customers abandon any survey? There could be numerous reasons, but one major reason behind this is long surveys.
Do you think modern-day customers have the time to fill a lengthy questionnaire? The answer is obviously NO.
The beauty of NPS Surveys is that they are short. They generally consist of a maximum of 2 questions. They can be completed in just a few minutes by asking customers to rate their overall experience and provide additional comments stating the reasons behind it.
The surveys can be integrated within the website or can be shared via multiple channels consisting of SMS, Email, iPad, Tablets, or even kiosks. The completion rates of NPS Surveys are comparatively higher as compared to traditional surveys, and they are more cost-effective.
Now you must have understood why most companies prefer NPS Surveys — we all want more promoters and fewer detractors. Net Promoter Score is one of the most powerful tools to gauge brand loyalty, word-of-mouth marketing, and customer satisfaction. You would never be able to improve the overall customer experience until the time you don’t have a proper understanding of the customer journey.
NPS, when used alone or combined with other Customer Experience metrics like CSAT and CES, will help you understand how your customers perceive your brand.