Net Promoter

Net Promoter or Net Promoter Score ( NPS ) is a management tool that can be used to gauge the loyalty of a firm’s customer relationships . It serves as an alternative to traditional customer satisfaction and claims to be correlated with revenue growth. [1] Fortune 1000 companies using the metric. [2]

Net Promoter Score is a customer loyalty metric developed by Fred Reichheld , Bain & Company , and Satmetrix . It was introduced by Reichheld in his 2003 Harvard Business Review article “One Number You Need to Grow.” [3]NPS can be as low as -100 (everybody is a detractor) or as high as + 100 (everybody is a promoter). An NPS that is positive (ie, higher than zero) is good, and an NPS of +50 is excellent.

Net Promoter Score (NPS) measures the loyalty that exists between a provider and a consumer. The provider may be a company, employ or any other entity. The provider is the entity that is asking questions about the NPS survey. The consumer is the customer, employee, or respondent to an NPS survey.

How it works

The Net Promoter Score is calculated based on a single question: How would you recommend our company / product / service to a friend? The scoring for this answer is most often based on a 0 to 10 scale. [4]

Those who respond with a score of 9 to 10 are called Promoters, and are considered to be able to exhibit value-creating behaviors, such as buying more, and making more positive referrals to other potential customers. Those who respond with a score of 0 to 6 are labeled Detractors, and they are believed to be less likely to exhibit value-creating behaviors. Responses of 7 and 8 are labeled Passive, and their behavior falls in the middle of Promoters and Detractors. [4] : 51The Net Promoter Score is calculated by subtracting the percentage of customers who are Promoters. For purposes of calculating a Net Promoter Score, Passive count towards the total number of respondents, thus decreasing the percentage of detractors and promoters and pushing the net score toward 0. [5]

Companies are encouraged to follow the recommendation with an open-ended request for elaboration, soliciting the reasons for a customer’s rating of that company or product. These reasons can be used for front-line employees and management teams for follow-up action. [3] Local office branch managers at Charles Schwab Corporation , for example, call back to the discussion of the feedback they provide through the NPS survey process, solve problems, and learn more. [6]

Reichheld and Markey say the rating and answers to the “Why?” provide all that is needed to identify reference customers and improvement opportunities. While this may be the case, the lack of any easy way to automatically analyze the verbatim answers without human bias is problematic. The response of many companies to the problem has been increased.

Additional questions can be included with the understanding of various products, services, and lines of business. These additional questions help the relative importance of these topics in the overall score. This is especially helpful in targeting resources to address issues that most impact the NPS. Companies using the Net Promoter System often rely on a vendor that offers a full suite of metrics, reporting, and analytics. [4] : 48-49

The primary purpose of the Net Promoter Score is to evaluate customer loyalty to a brand or company. citation needed ] The ability to measure customer loyalty is a more effective method of determining the likelihood that the customer will buy again. citation needed ] Measuring loyalty can be done in many ways, and researchers are more likely than others to ask for “likelihood to recommend.” [7]Since this is the purpose of this study, the objective of this study is not only to predict, but to predict the full suite of financially advantageous behaviors. [4] : 65-72

Net Promoter System also requires a process to close the loop . Closing the loop is a process in which the provider has actively provided feedback, and also has a negative perception, often converting to a detractor into a promoter. [4] : 175-198 In order to do this, the survey responds to an opinion that can not be anonymous (something that can have a negative impact in the willingness to take the survey or to give low grades). citation needed ] The Detractors, and should automatically alert the provider to contact the consumer and manage the followup and actions from that point. [8]

Proponent of the Net Promoter Approach to Demonstration of Health and Outcomes. citation needed ] They further claim that a company’s Net Promoter Score correlates with revenue growth. [9] The Net Promoter approach has-been by adopté Several companies, Including Australia Post , [10] Siemens , [11] E.ON , [12] Philips , [4] : 61-65 GE , [13] Apple Retail , [14] American Express , [15]and Intuit . [16] It has also emerged as a measure of loyalty for online applications, as well as social game products. [17]

A customer is able to leave comments in the surveys sent to them. This is what allows a company to use the VOC (Voice of Customer). quote needed ]

Some proponents of the Net Promoter Score also suggest that the same methodology can be used to measure, evaluate and manage employee loyalty. They claim to be able to maintain a focus on their culture. What is sometimes called the “Employee Net Promoter Score” or is it that it has been compared to other employees and that it correlates well with those other metrics. [4] : 165

For some kinds of industries, particularly software and services, it has been shown that Detractors tend to remain with a company and Passives leave. [18] This appears to be the case where switching barriers are relatively high.

In the face of criticisms of the Net Promoter Score, the proponents of the Net Promoter approach claims that the statistical analyzes are presented only to the “recommend” question is similar in the predictive power to other metrics, approach, which are at the heart of the argument Reichheld put forth. Proponents of the approach also based on their own customer sets, and that the practical benefits of the approach (short survey, simple concept to communicate, ability to follow up with customers ) outweigh any statistical inferiority of the approach. [16]Interestingly, they can also be used within the Net Promoter System, as long as they meet the criteria of relational reliance on promoters, passive and detractors. [4] : 12-13

Criticism of NPS

While the Net Promoter Score has gained popularity among business executives, it has also attracted controversy from academic and market research circles.

The lack of a causal connection is a feature of the use of statistical correlation and regression techniques. They suggest where to look for causal connections but do not provide them on their own. [19]

NPS does not add anything to other loyalty-related issues.

Research by Keiningham, Cooil, Andreassen and Aksoy argues that the Net Promoter metric is the best predictor of company growth. [20] In addition , Hayes (2008) argues that the “likelihood to recommend” issue is a better predictor of business growth than other customer-loyalty issues (eg, overall satisfaction, likelihood to purchase again). Specifically, Hayes stated that the “likelihood to recommend” issue does not measure anything different from other conventional loyalty-related issues. [21] The customer metrics included in this study perform well in the prediction of current performance. ” [22]

NPS uses a scale of low predictive validity.

Daniel Schneider, Matt Berent, et al. found that out of four scales tested, the 11-point scale advocated by Reichheld had the lowest predictive validity . [23]

Less accurate than composite index of questions.

“A single item question is much less reliable and more volatile than a composite index.” [24] “Furthermore, combining CFMs (customer feedback metrics), along with simultaneously investigating multiple dimensions of the customer relationship, and improving predictions even further.” [22]

Fails to predict loyalty behaviors.

“Intentionality will be sufficient for a single predictor of customers” future loyalty behaviors. [25] “… given the present state of evidence, it is not recommended to use the NPI as a predictor of growth nor financial performance.” [26]

See also

  • Advocacy Index
  • The Loyalty Effect
  • Relationship marketing


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