By RAFAŁ WAŚKO (Predictive Solutions)
Researching customer satisfaction and loyalty is currently an inseparable part of running a business that is focused on developing and building their advantage over competitors. Currently, the standard in this respect is the NPS index, which stands for Net Promoter Score. NPS’s popularity may result from its simple measuring method –asking customers one question – and its straightfoward calculation. Systematic NPS surveys make it possible to measure how customers’ loyalty is shaping over time, and when comparing NPS to that of competitors it can be seen how the company compares to the industry.
WHAT IS NPS?
Net Promoter Score is a measure of customer loyalty, which is surveyed by means of asking how likely it is that a customer recommends the company to their acquaintances, friends, co-workers, or family members.
NPS has been developed by Satmetrix and Fred F. Reichheld from Bain & Company, and then described in 2003 in the article “The One Number You Need to Grow”, published in the Harvard Business Review.
The Net Promoter Score (NPS) is a measure calculated on the basis of a single question, which contains an 11-grade evaluation scale from 0 to 10. The question proposed by F. Reichheld that, according to his research, is most effective in examining the loyalty of customers, is along the following lines: “How likely it is that you will recommend [company X] to your friend or co-worker?”.
As a tool for evaluating the loyalty of customers, the Net Promoter Score is based on the opinion that a customer is either a promoter, namely a satisfied user who will serve as a brand ambassador and will buy more, or detractors, namely a dissatisfied customer who will have an adverse impact on the company or the brand by sharing unflattering opinions. The difference between these two groups helps effectively measure customer loyalty.
Figure 1. NPS type question prepared within PS QUAESTIO PRO
The main NPS question, depending on the score chosen by the surveyed person, is often accompanied by an additional question. In the case of persons who choose low scores, most commonly the customers are additionally asked about what has contributed to their evaluation. This way, the company or organization knows more about what aspects require improvements
PROMOTERS, NEUTRAL, DETRACTORS – NPS WITH BREAKDOWN INTO ROLES
In NPS, the customers are classified into one of three groups, depending on the score they chose.
- Promoters (score 9 or 10) – represent the most loyal customers: can serve as brand ambassadors, improve the brand reputation, and increase the recommendation flow.
- Neutral customers (score 7 or 8) – these are persons who are unlikely to actively recommend the company, or brand, but also are unlikely to affect its image negatively. The persons who choose the scores 7 or 8 are not taken into consideration in calculating the NPS.
- Detractors (score from 0 to 6) – persons who are unlikely to actively recommend, and also are not attached to the company, or brand, and they will not buy more. This category may also actively discourage potential customers to use the services or products of the company.
HOW TO CALCULATE NPS
NPS is relatively simple to calculate and does not require high analytic capabilities. The NPS values are the difference between the percentage of the promoters and the detractors. It should be remembered that this equation ignores the so-called neutral customers, namely the scores 7 and 8.
NPS result =% of Promoters –% of Detractors
For example, if 25% of the respondents are detractors, 15% are neutral, and 60% are promoters, then we can calculate the NPS: 60 – 25 = 35.
NPS may have results of from -100 (the lowest NPS) to 100 (the highest NPS). A score of 100 means that 100% of the customers are promoters of the brand and have chosen the scores 9 or 10. A negative NPS means that the detractors exceed the number of the promoters.
Given the available range of -100 to 100, any result higher than 0 is regarded as good because it suggests that the company has more promoters than detractors, whilst a result of 50 or more is considered very good. Companies of the highest class usually have NPS values of 70 or more. In 2018 Tesla could boast a NPS value of 96, Starbucks 77, Apple 72, and Netflix 68.
It is worth remembering that a one-time NPS measurement is not reliable. NPS surveys should be performed systematically in order to determine how customer loyalty is shaping in the long run. Another important issue is the comparability of the NPS results with other companies in the industry (if possible). NPS results at the level of 10 may seem not very satisfactory, but when compared to other, competitive companies whose average NPS score is -5, it turns out that our result compared to the industry does not look too bad.
One example could be the NPS values for several brands in the fast-food industry. As one can see, the NPS of 14 for KFC or 36 for Nandos suggest that these are brands with more promoters than detractors, but when compared to Starbucks (77) or Pizza Hut (78), they could be described as brands significantly deviating from the leaders in terms of the NPS value.
Figure 2. Net Promoter Score values for selected fast food industry brands
Source: https://customer.guru/net-promoter-score/industry/consumer-brands-fast-food (access date: 21.03.2022)
The NPS index is, in and of itself, not that useful. Proper NPS result and data reporting method are worth ensuring so that it is easy to review results, and to compare them with previously conducted research. For this purpose, so-called NPS dashboards are often being prepared which present in an easy and attractive manner data crucial for decision-makers at companies.
Figure 3. An example dashboard which displays the results of an NPS survey prepared by means of PS IMAGO Designer
Net Promoter Score is a popular tool for measuring the loyalty towards companies and brands. It can be an alternative method of evaluating customer satisfaction to traditional studies of this kind. When measured systematically, it helps monitor how the customer loyalty is shaping, which may contribute to the company’s growth. NPS has, however, its critics, who claim that measuring the loyalty of customers by means of only one question is an oversimplification. An additional argument may be the belief that persons who complete the questionnaires oftentimes do not pay too much attention to the replies being checked, therefore the results may be unreliable.
Reichheld, F. Frederick, 2003: „The One Number You Need to Grow”; Harvard Business Review, 81(12):46-54.
 „Global Nps & Enps Benchmark Report 2018”; https://customerexperienceoffice.com/wp-content/uploads/2018/12/GLOBAL-NPS-ENPS-BENCHMARK-REPORT-2018.pdf