Net Promoter Score & Customer Satisfaction: What is it and the benefits of this analysis!
Net promoter score (NPS) is the customer experience metric to measure customers’ loyalty to a company, product, or service. Customers’ loyalty to a product or service can be expressed differently. Below are some instances of how customers can express their loyalty to a business:
- Loyal customers spend more than others
- Loyal customers tend to recommend the product/service to a family member or friend.
- Loyal customers give a business repeat purchases (orders) over time
This powerful tool was developed by Bain and Company in 2003. It has been considered the gold standard customer experience metric, which has been used by many businesses to monitor their client’s perceptions of the business. NPS scores are measured with a simple survey and reported with a number from the range of -100 to +100.
While a business owner can develop a list of questions (survey) to measure NPS, Fred Reichheld, the creator of the Net Promoter System noted that a single question “How likely is it that you would recommend [Organization X/Product Y/ Service Z] to a friend or colleague?” can easily be used to check clients’ loyalty.
Customers’ response to this question lies between 0 (not at all likely) and 10 (extremely likely) and their responses will place them (customers) into one of three categories to use to access the business NPS.
- Promoters are loyal customers. Their response is a score of 9 or 10.
- Passives respond with a score of 7 or 8. They are satisfied with the service however they are not sure they want to promote it yet.
- Detractors are unhappy customers who are likely to churn as well as be antagonists to the business. Their score is 1 to 6.
After collecting all the survey responses, one can calculate the NPS using the following algorithm
Net Promoter Score (NPS) = Percentage of Promoters – Percentage of Detractors
Passives are excluded given they are undecided.
While the NPS gets an overview of the business it is performing, there are other insights that can be explored in this sphere. Let’s have a look at some possibilities.
Let’s explore the advantages of implementing NPS in your organization.
While other customer success instruments employ a log of questions and fillers, NPS is a simple question that offers your respondents (customers, and employees) a chance to respond quickly. Another reason why the respondents can easily respond to NPS is they feel safe about the question (no personal data like biodata needed) to participate in this exercise.
Most customer relationship management (CRM) and marketing automation tools like Survicate have integrated the NPS algorithm into their system. This gives business owners the chance to distribute the survey to the right customer segments for timely feedback through a suitable channel. Given the NPS survey, it is easy to configure, analyze the responses and present the findings using the appropriate visualization tools such as bar charts, tables are achievable.
According to a leading research team (Market connections), the average cost to conduct customer research is between 20,000 – 100,000 USD. This value is quite expensive, especially for start-ups who are finding their feet in the business. Employing NPS to carry out customer research is relatively cheap especially when you consider the value it added to the business.
4. Great Business Improvement Tool
With the NPS feedback available for the business team to review, the business team can easily identify the weak link within the business process. Addressing the weak link(s) offers business opportunities to evolve into possibilities they would love to attain. Another gain is everyone in the team can be involved the improvement cycle. This empowers team spirit and cohesion in the workforce.
5. Effective Customer Segmentation
After the administration of NPS on the business, the business users can easily segment their customers into three groups (promoters, passive, and detractors) and find the right ways to address their needs.
Table 1: Different Customer Groups by their NPS value
|S/N||Groups||NPS Score||Customer Behavior Code||Action Points|
|1||Promoter||9-10||Green||Encourage them to leave reviews and recommend products/services to others, especially their family and friends.|
|2||Passive||7-8||Amber||They are at a sensitive point of the business. While most owners overlook these customers, it is best you pay attention to them and make moves to ensure they move to the promoter set else they may reduce your retention rates by becoming detractors.|
|3||Detractors||1-6||Red||They are unhappy and likely to express their disappointment on public platforms. Get their attention, find out their reasons for the poor score, make amends and win their trust by providing great offers|
Business owners know the role of customer satisfaction (a measurement of how happy customers are with a company’s products and services) in their business success. Measuring this parameter accurately helps business owners to align their services and products to serve their customers better. There are various tools business owners can use to measure customer satisfaction. NPS is arguably one of the best tools because of its simplicity, cost, extensible, and effective customer segmentation scheme. With the right application of NPS, business owners can easily identify their customers’ sentiments and manage them properly.