According to the American economic strate­gist Fred Reichheld, customer sat­is­fac­tion surveys can be broken down to an “ul­ti­ma­tive question”:

How likely is it that you would recommend the company/product/service to a friend or colleague?

According to Reichheld, this question makes it possible to work out the re­la­tion­ship between sup­port­ers and critics, and to derive how customer groups relate to companies, brands, products, and services. The Net Promoter Score (shortened to NPS) is a method of depicting customer sat­is­fac­tion or dis­sat­is­fac­tion. It was developed by Reichheld in co­op­er­a­tion with Satmetrix Systems and Bain & Company. Bench­marks for various in­dus­tries are available as ori­en­ta­tion. Busi­ness­es that use NPS include industry leaders such as Siemens, E.ON, Philips, General Electric, Apple, American Express, and Intuit.

De­f­i­n­i­tion

NPS (Net Promoter Score) is an in­stru­ment of customer ex­pe­ri­ence man­age­ment that makes it possible to depict the level of customer sat­is­fac­tion as a quan­tifi­able variable.

We explain how the customer sat­is­fac­tion survey is conducted according to Reichheld and which formula is used to calculate the New Promoter Score.

How does the NPS survey work?

An NPS survey is very simple. In order to obtain customer feedback, the question about whether the customer would recommend to others is placed at as many touch­points as possible. Customers usually answer by rating the question from 0 to 10.

The customer sat­is­fac­tion can refer to an in­di­vid­ual product or service, to a brand, or a company as a whole.

Here is an example:

The owner of the bike store, Wheels4U, wants to find out how satisfied customers are with his business. He asks the question “How likely is it that you would recommend the company/product/service to a friend or colleague?” to every customer that buys one of his bicycles, brings one in to be repaired, or asks for advice. The customers give their answer in the form of a ques­tion­naire that contains a rating scale of 0 to 10.

Al­ter­na­tive­ly, he could just measure customer sat­is­fac­tion sep­a­rate­ly for each product or service offered.

How is the Net Promoter Score cal­cu­lat­ed?

In order to analyze the NPS survey, the surveyed customers are divided into three groups depending on their answer.

  • 9–10: Customers who indicate their will­ing­ness to recommend with 9 or 10 are con­sid­ered “promoters”
  • 7–8: All answers of 7 or 8 are con­sid­ered in­dif­fer­ent
  • 0–6: Customers who give a score of 0 to 6 are con­sid­ered “de­trac­tors” (critics)

The Net Promoter Score is then cal­cu­lat­ed using the following formula:

NPS = Per­cent­age of all promoters - per­cent­age of all de­trac­tors

The result will be a value between +100% and -100%.

Here is an example:

The bike store, Wheels4U, found that 50% of the customers surveyed gave 9 or 10 as their answer as to whether they would recommend the store to a friend. Only 10% gave a value of 6 or less.

The owner can therefore classify 50% of customers as promoters and 10% as de­trac­tors. The remaining 40% count as in­dif­fer­ent par­tic­i­pants.

The Net Promoter Score of the bicycle store is cal­cu­lat­ed like this:

50 % - 10 % = 40 %

But what does this result actually mean?

Analyzing the Net Promoter Score

According to research by the man­age­ment con­sul­tan­cy, Bain & Company, the NPS cor­re­lates directly with a company’s success. The company, which spe­cial­izes in strategy con­sult­ing, reports that companies with long-term prof­itable growth generally achieve a Net Promoter Score twice as high as average companies. According to Bain & Company, the top per­form­ers (regarding ranking) grow more than twice as fast as the com­pe­ti­tion. However, these results could not be repli­cat­ed in in­de­pen­dent studies. Nev­er­the­less, many consider the cor­re­la­tion between NPS and growth as enough proof.

According to Reichheld, when analyzing Net Promoter Scores it wouldn’t be unusual to assume that companies with a positive double-digit NPS will grow prof­itably. With a value of 40%, the owner of Wheels4U doesn’t have to worry for the time being. How well the store actually performs, however, can only be estimated if you know the values of its direct com­peti­tors.

If no other bike store in the city reaches an NPS of more than 10%, Wheels4U can sit back and put its feet up. If the com­pe­ti­tion averages 80%, the owner should consider investing more in customer sat­is­fac­tion in the future.

However, the as­sess­ment of the NPS is not only dependent on com­pe­ti­tion, but also on the market and industry. For example, companies in the banking sector generally achieve negative values, meaning that a Net Promoter Score of 0% in this sector could actually be regarded as a success.

The re­spec­tive cultural en­vi­ron­ment can also have an impact on the ranking. In Asia, for example, companies tend to achieve worse values than in the American market.

How the NPS has developed over time is also in­ter­est­ing.

Criticism of the NPS

Due to its sim­plic­i­ty, the NPS is a popular tool for obtaining customer feedback on a broad basis. However, it is only used to access overall customer sat­is­fac­tion. The NPS alone says little about customer loyalty. Companies that use the Net Promoter Score receive an index that shows customer sat­is­fac­tion and can be compared with the general bench­marks. Business owners learn nothing about the re­la­tion­ship between cause and effect – the influence of company per­for­mance on customer attitudes.

According to critics, the NPS therefore misses the mark. There are numerous methods that can be used to map customer sat­is­fac­tion as an index – in some cases even with a stronger cor­re­la­tion to company growth. The one used basically plays a sub­or­di­nate role when it comes to iden­ti­fy­ing room for maneuver for op­ti­miza­tion.

Reichheld therefore rec­om­mends NPS users to get customers to elaborate on their rating by asking why they gave that par­tic­u­lar rating. Only those who know why customers become promoters or de­trac­tors can identify op­por­tu­ni­ties and obstacles and initiate the right measures to improve their offering.

However, while a rating on the NPS scale enables simple, automatic analysis, it isn’t the same with answers to these open questions. Open questions always leave room for in­ter­pre­ta­tion – re­gard­less of whether they are analyzed manually or by a computer. Reichheld doesn’t reveal how answers can be analyzed without being biased and with as little effort as possible. As a com­pro­mise, companies often add questions with rating scales or pre­de­fined answer options to the NPS.

In order to get as much as possible out of the collected data, business owners who have de­ter­mined customer sat­is­fac­tion via NPS would have to approach de­trac­tors specif­i­cal­ly in order to win them over. Promoters, on the other hand, can serve as reference customers if required. The pre­req­ui­site for this is direct contact with the customers. However, this is usually only possible if the surveys are not carried out anony­mous­ly. However, this usually reduces the will­ing­ness to par­tic­i­pate.

Summary: ad­van­tages and dis­ad­van­tages of the NPS at a glance

The following table provides an overview of the ad­van­tages and dis­ad­van­tages of the NPS in customer loyalty research.

Ad­van­tages Dis­ad­van­tages
NPS provides an overview of customer sat­is­fac­tion The Net Promoter Score rep­re­sents only a small part of customer loyalty research (pure index de­ter­mi­na­tion)
Surveys to record Net Promoter Scores are easy to implement and easy to replicate Many companies only use the NPS and com­plete­ly exclude the causal analysis 
NPS is used as a stan­dard­ized test by leading companies worldwide With an NPS, the reason for a rating can’t be analyzed ef­fec­tive­ly
Users are seduced by certified bench­marks for various in­dus­tries The par­tic­u­lar­ly strong cor­re­la­tion between a company’s NPS and its growth pos­tu­lat­ed by Reichheld is ques­tioned by critics 
Summary

The Net Promoter Score is a good in­tro­duc­tion to customer loyalty research, but doesn’t con­tribute much to improving customer loyalty without a sub­se­quent root cause analysis.

Reviewer

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