I. What It Is
The “Net Promoter Score” (NPS), invented by Fred Reichheld at Bain & Company in 2003, helps to determine how loyal customers really are to any particular business. There is an NPS spectrum that answers the question, How likely is it that you would recommend a certain brand to a friend or colleague? The range runs from 0, in which a consumer is not at all likely to recommend a brand, to 10, where that consumer is extremely like to do so. The NPS is calculated by subtracting the percentage of low-end scoring consumers (detractors) from the high-end scoring consumers (promoters).
II. When to Use It
When a business wants to get at a clear measure of its performance through its customers’ eyes, it uses an NPS to determine whether it is a sustained value creator and to gauge the efficiency of the company’s growth engine, because the net score of promoters will show how long-term the company can become. This metric is a radical change from notoriously ineffective customer satisfaction surveys; companies can use the NPS instead to measure customer relationships as rigorously as they now measure profits. Every link in the value chain can be accounted now. In that spirit, the NPS can clarify the link between the quality of a company’s customer relationships and its prospects for future growth.
III. SIS Recommended Methods
The elegant simplicity of this method, based on the single question How likely is it that you will recommend this brand or product?, reduces the customer base into three categories: Promoters, Passives, and Detractors. Naturally, you want as many promoters and as few detractors as possible. Nothing much can be done about the Passives.
IV. Case Studies
As the Harvard Business Review reported, companies like Philips have used an NPS in order to “to try to become an outside-in, customer-focused organization.” The NPS has “deepened our focus on organizing ourselves around the needs and expectations of our markets.” Other brands that have used an NPS include Delta Airlines, Dupont, Neiman Marcus, PayPal, Comcast, Medtronic, and many more.
V. Impact on Business Decisions
The main advantage of the NPS is that it allows companies to think about metrics that come from its own customers. Of course, revenue is the ultimate metric, but revenue is a lagging indicator and not necessarily a good one when it comes to forecasting future growth. What is more, you cannot do anything about last quarter’s numbers. With an NPS in place, a business might be able to improve next year’s revenue and, in the process, make its customer base happier and more loyal to the brand.