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Net Promoter Score (NPS)

NPS is a survey technique devised by Fredrick Reichheld of Bain & Co. in the early 2000s. The technique is designed to identify which customers are Promoters (Loyal), Passives (Satisfied) and Detractors. The survey asks one question – “The Ultimate Question”

“How likely is it that you would recommend (your company) to your friends and colleagues”

The survey is scored on a 0 – 10 scale where 0 = “most unlikely” and 10 = “most likely”, the NPS is calculated by deducting the % of Detractors from the % of Promoters, Passives are not counted in the calculation.

   

NPS Survey Scoring

0

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10

 

 

 

 

 

 

 

 

 

 

 

Detractors

Passives

Promoters


An NPS of 80 is exceptional (e.g. Apple) while a minus figure is not unknown and indicates a company with a very poor customer strategy - and very serious problems

There are two broad types of NPS, one is described as “Relational” – it measures movements in the NPS on a regular on-going basis and “Transactional” – which measures the customers’ responses to an individual event e.g. the introduction of a new service or product.

The accuracy of the survey is dependent in large measure on the % of customers who respond to it – working targets are 50%/60% for B2B and 25%/30% for B2C surveys.

There are critics of NPS saying that it is too simple to provide accurate, actionable customer data, those interested in their opinions should search the Web for articles on the subject. Many are critical because they assume that the NPS survey is the end of a process where in fact it is simply the beginning - the map showing the paths to improvement. It is also possible that some critics  offer services involving traditional multi-question surveys - biased perhaps? 

Suffice it say that a growing number of companies in the US and overseas including a significant number of the top 500 companies use NPS, many tying their executives’ compensation, in part, to the NPS in their segment of the business.

This website talks of the importance of loyal customers (and employees) and of the importance of converting others to the loyal status. It follows rather obviously that before this can be achieved it is necessary to know which customer, or customers in business segments, are Promoters, Passives or Detractors, knowing this makes it possible to conduct further, targeted research and develop plans to increase the % of loyal customers and to correct problems in the low NPS segments.

For companies with several divisions or locations and other business units knowing NPS makes it easy to compare the performance of each of the units and where there are significanr differences move to improve those with the lowest NPS 

It is important to point out that a Detractor customer, one who is likely to leave soon and who will take every opportunity to “bad mouth” the company can do far more damage to the company than a Promoter can benefit it. Bad news travels quickly and with all of the social media travels - instantaneously. Several studies have shown that it takes 3 – 5 positive comments to override a negative one.

Customer Loyalty studies start with collecting data about customers and employees and a very important part of this process is determining the NPS score of customers and of each business segment.


One unusual (in terms of accepted practice) application of NPS surveys is as part of the Due Dilegence phase of a merger or acquisition project. Knowing the NPS of the employees and customers of the two parties allows decision makers to make better informed decisions.