Have you ever asked your family and friends questions like ‘From 1-10, how much do you like this gadget/ product etc. and would you recommend it?’
If yes, you have been successfully utilizing the concept of Net Promoter Score in your day-to-day life to study reactions, preferences and satisfaction levels of other individuals.
The Net Promoter Score, commonly known as NPS, is a metric system that is used to gauge customer satisfaction, customer experience and engagement levels. It basically evaluates sentiments to assess whether or not a customer will recommend a particular brand.
It is a simple Question and Answer system wherein the brand asks its customers to rate how likely they are to recommend the brand to others on a scale of 1-10 with 10 being ‘very likely’ and 1 being ‘unlikely’. Based on the ratings, the customers are segmented into three categories. Customers that rate between 0-6 are Detractors, 7-8 are Passives and customers that rate between 9-10 fall under Promoters. The customers of each category or segment have specific attributes according to research by Fred Reichheld of Bain & Co. with Satmetrix. Detractors are basically unhappy customers who are not satisfied with your brand as a whole and are unlikely to purchase from you again. The Passives are moderately satisfied with your brand but are not thoroughly impressed. They may repurchase from your brand but it is unlikely that they might recommend you. Lastly, Promoters are extremely satisfied customers who have a high probability of turning into brand loyalists and advocates.
The NPS is calculated by subtracting the Detractors from the percentage of Promoters. Generally, NPS of 40 and above is considered as a benchmark for high-performing brands with strong customer loyalty.
Contrary to popular belief, it was not in 2003 but in 1993 when the NPS system was introduced by Fred Reichheld, in 2003 that the system was adopted by Bain & Co. and Satmetrix and published in Harvard Business Review. The team at Bain & Co. with the support of data supplied by Satmertrix launched a project wherein 20 distinct questionnaires were sent out to at least a thousand customers from six different sectors and industries.
The researchers noted that one question, in particular, had a direct correlation with purchase as well referral patterns of consumers and that it had a significant impact on customer loyalty as well. The question was based on the likelihood of a recommendation. The research as well as the NPS system gained popularity and was adopted by companies and brands across various sectors to measure customer satisfaction and loyalty for years to come.
Endorsed by a well-known consulting firm, Bain & Co., the NPS system gained traction rapidly and became a well-recognized and universally accepted metric to gauge satisfaction levels. During the first phase of its launch, the NPS score was regarded as a strong and accurate metric to measure business growth.
The simpler the concept, the higher the efficiency. NPS system adopted this formula to speak a language that is universally accepted and is comprehensible to a common customer. Since the concept is understood by everyone and hardly takes a few seconds of the customer, the participation rate is also higher. The simplicity of the concept also makes it quite appealing to the customers. Moreover, it is easier to calculate as well set up, be it on offline or online channels. Lastly, NPS system can be utilized to track the performance of various activities be it customer experience, customer support, engagement, or even performance of a product or service.
Although far from accurate, the NPS system can still be used today. However, it must be used in combination with other techniques, methods, and data analysis.
The Recency, Frequency, and Monetary value (RFM) that helps in translating customer data into profitability scores can help in segmenting customers. RFM categorizes customers based on their purchase patterns and behavior. Customer loyalty can also be measured through word-of-mouth equity, an index of a brand’s power to entice customers to influence other potential customers.
Perhaps one of the easiest and highly systematic ways to measure business growth and customer loyalty is by calculating the customer churn rate and customer retention rate. You could also accumulate and analyze social data such as reviews and feedback to gain precise insights into your audience and their affinity towards the brand.
Platforms like Annex Cloud can help you maneuver and sort through data through social and behavioral loyalty solutions. It can also identify the exact number of Promoters and gauge their impact on your brand as well. This data not only give you insights into your business growth and customer loyalty but also help you design better strategies for maximum engagement. To know more, connect with Team Annex Cloud