What is a Net Promoter Score?

Menno van Dijk Jessica Beketa
March 23rd, 2017
Article by: Menno van Dijk, Jessica Beketa
What is a Net Promoter Score?

In 2003, Fred Reichheld and Bain & Company coined Net Promoter Score (NPS) as the ultimate metric to predict growth by surveying whether a customer is willing to recommend your company’s product or service to others.

 

How it works: customers respond based on a scale from 0-10. The so-called Detractors (the percentage that score between 0-6) are subtracted from Promoters (percentage that score either 9 or 10).  The Passives that scored between 7-8 are dismissed. The concept of NPS took the business world by storm. Companies worldwide were quick to adopt the framework and to use it as a metric to determine customer loyalty, customer satisfaction, and future growth.

 

Since its quick adoption and deployment, several academic and scientific studies were conducted to verify the validity of NPS and whether it really does predict future growth. Those that have replicated Bain & Company’s study (e.g., Keiningham, 2007; Kristensen, 2013) have discounted their claims, as their results were not comparable and at times completely contradictory.  NPS is just one example of a concept that has been widely praised by thought leaders and practitioners, adopted and come to the forefront of businesses without the academic rigor to ground and validate it.  The implication that’s raised is entrepreneurs should use NPS as a tool to test and understand their customer base while understanding its limitations, in addition to not depending on it as their only connection to their market.

net promoter score

Net Promoter Score (NPS) is used to predict growth by surveying whether a customer is willing to recommend your company’s product or service to others.

 

Implications for practitioners

NPS is a metric that produces a single and simple outcome, which naturally has its limitations when compared to more sophisticated, comprehensive measurements.  The other ways to measure customer satisfaction (e.g. American Customers Satisfaction Index, one of the most widely used) combines rating metrics with additional quantitative and qualitative dimensions of the customer relationship (e.g., frequency of interaction, intensity of experience) to improve predictions, and thus customer service.

However, a single metric does help an organization intuitively align on a single goal: delighting users. We recommend making it a management priority to thoroughly understand your NPS score and what it means for the future of your business. Focus on understanding why customers are detractors or promoters, and capitalize on feedback loops for rapid learning and improvement.  In essence, measure, learn and take action.  As long as using NPS gives you valuable customer insights, it is useful.  Avoid “gaming” it by taking actions that improve NPS without necessarily delighting users e.g., by asking the question selectively.

NPS as a concept revolves around delighting users. Delighting users goes beyond customer satisfaction to providing a positive surprise element that comes along with a truly superior experience.  This in turn is expected to increase customer loyalty and trigger word-of-mouth marketing.  Undeniably, these are important growth factors, but only when customers have a real choice.

 

net promoter score
A single metric that helps an organization intuitively align with a single goal is delighting users. Click To Tweet

This means your company should use NPS only if your customers have a choice.  This is the case if you are operating in a market with multiple product providers and customers can make a good comparison, or, in case of a new product category, when customers can decide to buy or postpone.   Also customers should not experience inhibitive switching costs by switching between suppliers.

With these caveats in mind, it does make good sense to identify and champion your early adopters and capitalize on their enthusiasm.  This is especially important when launching new, innovative products or services that require developing trust and understanding.  It also helps to turn customer attitudes into real outcomes: customers are always optimistic about their future behavior yet follow-throughs are rare. How do you make it easy for customers to actually make referrals?

Don’t forget about your competitors: chances are high that your customers are also using your competitor’s products and services. They may give you a 9 on the NPS scale, but give your direct competitor a 10. What can you do to ensure you are really outperforming others on delighting your users?

On a final note, be sensitive to industry and cultural differences: cut-off points for “detractors”, “passives” and “promoters” could vary across industries and cultures.  Bain & Company points out that industry dynamics and the performance of the local operating company can account for significant variation. Every enterprise needs to calibrate through careful measurement, analysis and interpretation.

net promoter score
Identify and champion your early adopters and capitalize on their enthusiasm. Click To Tweet

Walk the talk

We have been using NPS at THNK since day one.   We want to be in “continuous beta” to constantly learn and improve. NPS provides us with a great tool for this.  When we do receive scores that are below the promoter level we have a follow-up conversation to get detailed feedback.  In that sense, the passives or detractors can be our most valuable participants for bringing a critical lens and pointing out when things don’t work.  It has allowed us to grow from an NPS of 85 to 100 in a period of 5 years.   In addition, we turn NPS into action by asking for names of people within their networks who they would recommend for our Executive Leadership Program.

Discover the best ways to build a product your customers will love in the THNK Executive Leadership Program. Visit the program page to find out if you qualify or contact us at admissions@thnk.org.

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