Net Promoter Score (NPS) is an index that identifies customer loyalty to a product or company and is used to assess readiness for re-purchases.
How It Works
Measuring the NPS loyalty index involves several steps:
- Consumers are asked to answer the question “What is the probability that you would recommend a company/product/brand to your friends/acquaintances/colleagues?” On a 10-point scale, where 0 corresponds to the answer “I will not recommend it in any way”, and 10 - “ I will surely recommend. "
- Based on the estimates obtained, all consumers are divided into 3 groups:
9-10 points - product/brand promoters,
7-8 points - passives,
0-6 points - detractors.
- Calculation of the NPS index itself. NPS =% supporters -% critics
As a result, the the user’s loyalty score calculated on the scale from -100 to 100.
If all the customers are willing to recommend the product, the score will be about 90-100, if they are not willing to recommend it - the NPS will drop to -90-100 points.
NPS trade mark was registered for the marketing tool, which automates the calculation of the above mentioned data.
Frederick Reichheld is considered the founder of the method, who first announced the method in the article “One Number You Need to Grow”, published in the Harvard Business Review in December 2003.
- In 2006, he released a book entitled “The Ultimate Question: Driving Good Profits and True Growth”. He continued his arguments on the loyalty, profitability and growth of the company.
- In 2010, Reichheld conducted research in more than 400 American companies, where the main task was to measure the influence of customer loyalty (measured by NPS) on its growth rate.
The main result was the conclusion that the average NPS by market in the industry was 16%, but for companies such as eBay and Amazon NPS it was 75%. Reichheld does not say that communication is present everywhere: it is absent altogether in monopolistic markets.
- However, industries such as passenger air travel, insurance, and car rental have become a prime example of interconnection.
This is obvious, since these companies are service providers, where customer satisfaction and loyalty depend on the level of customer service. As a result, many companies have become adherents of this technology, including Apple, American Express, eBay, Amazon, Allianz, P & G, Intuit,, Philips, etc.
For certain industries, especially software, it has been proven that detractors often stay with the company while passives leave. This seems to be a relatively high barrier to trade.
Faced with criticism of the promoter's score, proponents of the network promoter's approach stated that the proposed statistical analysis only proved that the "recommendation" problem was similar to other indicators in predictive capacity, but failed to solve the real problem and this is the core of the argument presented by Reichheld.
Proponents of the method also argue that third-party data analysis is not as good as analyzing the company in its own set of customers, and the actual benefits of the method (simple communication concepts, short survey, customer follow-up features ) exceed any statistical disadvantage of the approach.
They also allow inquiries using any other issues to be used in the net promotion system, as long as it meets the criteria to securely classify customers as promoters, passives and detractors.