What is NPS®?
The Definition and Interpretation of the Net Promoter Score®
The NPS (Net Promoter Score) is a key figure that provides information about the satisfaction of customers with a company and thus also about its success. In a short, standardized survey, customers are asked to state how likely they are to recommend a company or product to others and to give reasons for their rating. These ratings build the basis to subsequently calculate the Net Promoter Score.
For many years, the NPS has accompanied companies for many years as a key performance indicator on their way to a better understanding of both customers and increasing customer loyalty. But where did the idea come from to use numbers to display customer satisfaction?
In 2003, Fred Reichheld—a partner at Bain & Company, the world’s largest management consultancy—started looking for a method to measure customer loyalty and the willingness to recommend. Together with his research team, he sent 20 different questionnaires to thousands of customers in six types of industries. During his investigation, it became clear that there is no need for complex studies to measure customer loyalty. Instead, one or two questions, continuously asked, are sufficient to determine the willingness to recommend. Based on his research, Reichheld finally developed the Net Promoter System®. In the years that followed, the NPS was continuously developed and has since made its triumphant advance not only through large but also small and medium-sized companies.
A Brief Overview of NPS
Besides providing information on key figures such as customer satisfaction and customer loyalty, NPS is also an important comparative value in benchmarking. This is because to discover which company is the most popular with its customers, you only need to compare their Net Promoter Scores. However, country-specific and industry-specific differences should also be considered—an NPS from Germany, for example, cannot be compared 1:1 with an NPS from the USA.
To determine the NPS® value, companies ask their customers about their willingness to put in a good word for them with friends and acquaintances. To do this, they use the same question over and over again:
“How likely would you recommend this company to a friend or colleague?”
Respondents can express their approval or disapproval on a number scale with a value from 0 to 10. The higher the number a customer chooses, the more likely they are to recommend the company. In an additional open answer field, the customer can give further feedback and justify his answer. The Net Promoter Score is then calculated based on the responses received. Like a thermometer measuring customer satisfaction, the NPS can go up to +100 or down to −100.
The Net Promoter Score® (NPS) is a key metric that provides information about a company’s success—more precisely, customer satisfaction, customer loyalty, and the willingness to recommend. The measurement bases itself on a simple, standardized customer survey.
Good to know: NPS is sometimes incorrectly referred to as the “NPS Score” or “NPS Value”. Strictly speaking, however, this designation is incorrect, as you would then write it out as “Net Promoter Score Score” or “Net Promoter Score Value”.
What the Number on the Mood Barometer Reveals about the Customer
With their answer, the customer determines whether the mood barometer rises or falls. Depending on their level of agreement, the survey participants fall into one of three categories:
- Detractors, with a willingness to recommend of between 0 and 6 points, are on the lower end of the scale and are among the critics. They may express their displeasure in the form of negative reviews or comments on social media or blogs, or by advising prospective customers not to use the product or company.
- Promoters are among the fans and supporters of a company. With their high spirits and positive experiences, they have the potential to infect others too. They give 9 or 10 points on the mood barometer and positively spread the news about the company.
- The mood of the indifferent customers is somewhat lukewarm. They rate the company neither positively nor negatively. With 7 or 8 points on the mood barometer, they lie between detractors and promoters and are usually not considered when calculating the Net Promoter Score.
The Net Promoter Score—More Than Just a Number
Why is NPS so important? NPS is more than just a key figure, as it heralds a change in perspective. Instead of just cooking their own soup, companies open their eyes to the customer. They ask customers whether they like the metaphorical soup, whether they would recommend it to others and which additional ingredients would refine the taste. This gives companies an insight into their customer’s tastes. The benefits flow from it in three ways:
- You are encouraged to consider new, different points of view.
- You can discover unknown problems.
- As a result, you can better assess your strengths and weaknesses.
Most NPS surveys do not anonymize participants. Companies can thus clearly assign the answers to their customers. They can draw conclusions from the link between customer profile and response and, for example, contact critics, if necessary. This is crucial for successful customer relationship management and consequent customer retention.
Four factors that Speak in Favor of the Net Promoter Score
Despite many advantages, many companies still forego customer surveys due to a lack of time and scarce resources. But in doing so, they are wasting valuable potential. Like salt in the soup, NPS is an essential ingredient in a successful company’s marketing recipe. The knowledge provided through NPS enables a company to act.
Four reasons in favor of NPS:
- NPS is easy and quick to collect. Simply asking about the value takes two minutes at most. The number of participants is usually correspondingly high.
- At the push of a button, companies can easily recognize and read both positive and negative opinions. Complainants and fans of a company become visible.
- If critics or emigrants have “come out”, they can be challenged or won back with targeted measures. Proponents can use public relations to report positively about the company or brand.
- Companies can be compared with one another using the standardized question and answer specifications. NPS is therefore an essential key benchmarking figure. This is because companies find out where they stand in comparison with their market competitors.
Milestones in Dealing with NPS
Loyal customers don’t come overnight. It is often a long road with many ups and downs until a company has built a loyal fan base. If you want to break an NPS high score, you should remember that the journey is the goal. Companies can use the following steps to increase their customer satisfaction in small steps:
Goal 1: Get out of the minus zone
A positive NPS is the first milestone. As soon as the Net Promoter Score is above 0, a company has more fans than critics. Companies whose NPS has plummeted should therefore first take care of their detractors.
Goal 2: A continuous climb
Is your NPS moving in the right direction? Companies should regularly review their progress. In our fast-paced world, you should choose survey intervals that allow you to react to changes quickly. However, that does not mean that they should be hyper-sensitive and fearful of NPS slip-ups. It is perfectly normal for NPS values to rise and fall now and then, just like a car that gets stuck in a hole. To get going again, it must first move back and forth bit by bit. The same goes for companies. In the long-term trend, however, your net promoter value should be overall positive.
Goal 3: Score ahead of the competition
The Net Promoter Score tells companies how many fans they have. But that’s only half the battle. It gets interesting when you compare your score with others. How do your competitors score? Who comes first on the scoring scale? The comparison with competitors provides a realistic picture of your relative position in the marketplace and can also take the wind out of your competition’s sails. A low NPS, for example, means a small fan base. But there’s no reason to panic—because perhaps competitors are scoring even worse with their customers.
Five Questions about NPS
You have now gained some insight into the Net Promoter Score. But that’s not all. The following questions give us an even deeper insight into NPS:
- How is NPS calculated?: The survey is long done and dusted. But how do you generate the NPS value? In the first step, all the answers collected are saved in a table. Using this table, the participants are divided into detractors, promoters, and indifferents. Next, you determine the percentage of promoters and detractors based on all your responses. When this is done, you should then subtract the percentage of detractors from that of the promoters. What remains is a number: The Net Promoter Score.
- Out on the mainline or stuck in a siding—what image does NPS have in Germany?: In Anglo-Saxon countries, NPS has long been part of the road to success. For many companies, it has established itself as an indicator of the popularity and success of a company, brand, or product. In the USA especially, companies use NPS as a figurehead and advertise it publicly to their customers. German companies, on the other hand, are somewhat hesitant. Even if the NPS has found its way into the German marketing department, it is little known to customers.
- Why is it worth getting in touch with detractors?: Once the NPS is determined, many companies concentrate on communicating with their promoters. The feedback from critics also contains valuable information. Companies that want to transform a grim view into a long-term polished reflection should, therefore, by no means give detractors the cold shoulder and instead respond to their feedback. What exactly is it that makes a customer dissatisfied? It is often helpful to know which bed the monster is hiding under before it pops out. Anyone who takes criticism seriously from the start can react to it in good time.
- Is a Net Promoter System worth it when resources are scarce?: Even with tight budgets, implementing NPS makes sense. Many companies still wrongly shy away from this. Often they fear that they do not have the necessary resources. But even with a small budget, minimal IT capacities, and few employees, companies can use the Net Promoter System effortlessly. Even better: In the long term, it can even increase sales, and with it, corporate success.
- How can NPS be improved?: The answer is very simple—by catching the customer at the right moment. Because choosing the right moment to request customer feedback determines the success or failure of the survey. But how do you choose the right touchpoint and, therefore, the point when the customer comes into contact with the company, brand, or product? As a rule, one divides the customer journey into different stages. It, therefore, makes perfect sense to ask the customer for their feedback at the end of each individual step. If you ask at the right moment, you can not only improve the NPS at the respective touchpoint but even the overall score.
As a company, what would I like to know from my customers? This question should come first when determining and analyzing the right touchpoint. It ensures that you collect feedback that also helps improve the customer journey. In practice, five touchpoints have emerged that are suitable for collecting relevant feedback and thus influencing the NPS.
Further Reading:
Conclusion
The Net Promoter Score gives companies an indication of the loyalty and satisfaction of their customers. Like a mirror image, the Net Promoter Score shows which customers support the company as promoters, criticize them as detractors, or are passive towards them as indifferents. Using the NPS can point the way to new strategies, especially in marketing. As a benchmarking tool, the key figure also makes it clear where a company stands in comparison to its competitors. Thanks to these insights, companies can respond to criticism and challenges faster, with greater agility and more customer orientation in today’s fast-paced, competitive markets.
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