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? Who defined the ultimate question about customer loyalty in the Web 2.0 age?
In 2003, the American Fred Reichheld—a partner in 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®, which he then presented in the Harvard Business Press bestseller, "The Ultimate Question". 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.
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”.
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.
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:
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:
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.
Despite many advantages, there are still many companies that 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:
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:
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.
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.
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 market place 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.
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:
As a company, what would I like to know from my customers? This question should come first when determining 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.
The Net Promoter Score, also known as NPS, 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.