Net Promoter Score (NPS) provides a quantitative measure to guide marketing strategies.
Understanding NPS
NPS is a widely recognized metric for measuring customer loyalty and satisfaction. Its inception in 2003 by Fred Reichheld, Bain & Company, and Satmetrix, stemmed from the need for a simple yet powerful way to gauge customer sentiment towards a company or product. The intelligence of NPS lies in its simplicity: it asks customers how likely they are to recommend a company, product, or service to others on a scale of 0-10.
NPS serves a dual purpose: it is a straightforward indicator of customer loyalty and a tool for improving customer service, product quality, and the overall customer experience. According to Bain & Company, a proven correlation exists between a company's growth and profitability. This explains roughly 20% to 60% of competitors' organic growth rate variation. A high NPS indicates that customers are more likely to act as brand advocates, leading to organic growth through word-of-mouth, while a low NPS signals the need for improvement.
How it works
- Customers are asked: "On a scale of 0-10, how likely are you to recommend our company/product/service to a friend or colleague?"
- Customers give a rating between 0 and 10.
- Ratings categorize customers into three groups: Promoters (9-10), Passives (7-8), and Detractors (0-6).
- Calculate NPS by subtracting the percentage of Detractors from the percentage of Promoters.
- The score can range from -100 to 100.
- A positive score indicates more Promoters than Detractors, showing customer loyalty.
- Companies use NPS to understand and improve customer loyalty and satisfaction.
- The process helps companies focus on feedback and enhance their offerings.
See also: How do I develop a customer health score?
The impact of a positive v negative score
A positive NPS reflects a higher number of customers who promote a brand, suggesting strong customer loyalty and satisfaction, which often correlates with increased sales growth and profitability. For example, a Journal of the Academy of Marketing Science study within the US sportswear industry found that NPS can indeed predict sales growth under certain conditions.
Specifically, a one-point increase in NPS was associated with an increase in quarterly sales, translating into millions of dollars in annual sales for major brands. This stresses the need to improve NPS, as companies with high NPS scores tend to outperform their competitors in growth rates. On the contrary, a negative NPS indicates a prevalence of detractors over promoters, signaling potential issues with customer satisfaction and loyalty that could hinder a company's growth and damage its reputation.
The study's findings suggest that the predictive capability of NPS for future sales growth is most evident when analyzing NPS as a dynamic measure (changes over time) rather than static levels. When considering NPS as an overall brand health metric rather than merely a transaction-based customer loyalty metric. This challenges the traditional academic skepticism around NPS while highlighting its practical value in enhancing customer experiences and driving business growth.
See also: The benefits of having a separate customer support email
How can NPS affect healthcare organizations?
A high NPS reflects that a portion of patients are not only satisfied with the care they receive but are also willing to recommend the healthcare provider to others. This endorsement is particularly valuable in the healthcare industry, where trust and personal recommendations assist in selecting healthcare services.
By incorporating positive NPS feedback and testimonials into marketing materials, healthcare organizations can enhance their reputation, demonstrating to potential patients the high quality of care and patient satisfaction they can expect to receive. A strong NPS score can also enable healthcare marketers to pinpoint and promote the organization's strengths, while also identifying areas for improvement that, when addressed, can further elevate patient satisfaction and loyalty.
Addressing these areas can lead to an upward spiral of increasing NPS scores, creating more positive experiences to share through marketing channels. This cycle of improvement and promotion can attract new patients, retain existing ones, and ultimately drive the organization's growth.
See also: HIPAA Compliant Email: The Definitive Guide
FAQs
How is NPS calculated if there are no detractors?
If an organization receives scores without any detractors (scores 0-6), the NPS would be calculated by subtracting 0% (the percentage of detractors) from the percentage of promoters, potentially resulting in a very high NPS.
Can NPS vary by industry or sector?
NPS benchmarks can vary across different industries and sectors due to differing customer expectations and experiences. It's necessary to compare an organization's NPS against relevant industry benchmarks for accurate insights.
How often should a company measure its NPS?
The frequency of NPS measurement can depend on the company's size, customer interaction frequency, and the volatility of its customer satisfaction levels. Some companies measure NPS continuously, while others do it quarterly or annually.
Kirsten Peremore
