Net Promoter Score (NPS): Would You Recommend It?
The net promoter score is based on the idea that one simple question (How likely is it that you would recommend this company to a friend or colleague?) can be used to divide customers into the three categories that most impact company growth: detractors, passives and promoters.
How likely is it that you would recommend [company X] to a friend or colleague?
Detractors are unhappy customers who can damage your brand and impede growth. Passives are satisfied but unenthusiastic customers. Promoters are loyal customers who will keep buying, referring others and fuelling growth.
The percentage of promoters versus detractors is used to calculate an NPS ranging from -100 (all of your customers are detractors) to +100 (all of your customers are promoters).
What’s it based on?
The NPS was first introduced in Frederick F. Reichheld’s 2003 HRB article, The One Number You Need to Grow.
Reichheld and his team tested a range of loyalty questions and found that the “would recommend” question was the best predictor of repurchases, referrals and other actions that contributed to growth in 11 of the 14 industry case studies they investigated. In those industries, the NPS also accounted for 20-60% of the variation in organic growth rates among competitors.
Reichheld proposed that businesses scrap their lengthy customer satisfaction surveys and complex loyalty algorithms in favor of one simple number: the NPS.
Why should you use it?
The core strength of the NPS is its simplicity. Replacing a lengthy customer satisfaction survey with a single question increases the likelihood that your customers will actually provide feedback. The “would recommend” question and resulting metric are also easily digestible, and so are more likely to be closely monitored by management and widely shared among employees.
One thing to note is that the NPS alone isn’t specific enough to drive action. In fact, the NPS often raises more questions than it answers: Why are 20% of your customers detractors? Why are 30% of your customers passives? What’s the relative importance of features or issues that led to a particular score? Are these the same issues your competitors are facing? What should you do to convert detractors/passives to promoters?
The only way to get more information is to include more questions in the original survey (sacrificing simplicity) or to commission a follow-up survey (inflates scores by pressuring consumers).
When should you skip it?
The NPS works best for benchmarking loyalty towards a single product, service or business location across time.
The fixed scores that define promoters, passives and detractors are insensitive to cultural differences in a person’s likelihood to recommend a product or service, making it difficult to compare the NPS for the same product or service across different locations.
There are also a whole host of product lines, ranging from the embarrassing (adult diapers anyone?) to the downright dull (toilet cleaner, floss, sellotape), that the average person will never recommend to a friend or colleague. Does that make those people unhappy customers who can damage your brand and impede growth? No. Should you devote valuable resources to the task of switching these “detractors” to “promoters”? Probably not.
What are the alternatives?
If you have a product line that people are unlikely to recommend, you should test alternative loyalty questions for their ability to predict repurchases, referrals or other important growth metrics within your industry. Reichheld found that the below questions were also effective predictors in a number of industries:
- How strongly do you agree that [company X] deserves your loyalty?
- How likely is it that you will continue to purchase products/services from [company X]?
Alternatively, it may be possible to skip the loyalty question altogether. The explosion in online shopping, customer engagement programs and offline tracking technologies during the years since the introduction of the NPS means that it’s now possible to track repurchases, shares and referrals, and relate them back to a specific customer lifecycle. This provides a direct measure of the actions that lead to growth and the context around those actions without relying on customer feedback.
Would you recommend it?
Just for fun, we’re calculating an NPS for the NPS. Please help us out by answering the question below: