Many times in the business world we hear definitions and concepts that help determine the success or failure of a business. Ever wondered what makes a customer loyal to a brand or business? Is it the quality of the product or service, the price or maybe something else? While there are a wide number of factors in business that can affect customer loyalty, one metric that has gained significant popularity in recent years is NPS.
Net Promoter Score (NPS) is an important indicator for measuring customer loyalty and is characterized as one of the most useful approaches for evaluating customer attitudes and behaviors. The concept of NPS was introduced to the business in 2003 by Fred Reichheld, a business strategist at Bain & Company, and then turned into the business model used today.
So, what exactly is NPS?
NPS is a key measure of consumer loyalty. It is based solely on one question: “How likely are you to recommend product/service X to a friend or colleague?” Customers are then asked to rate their likelihood of responding on a scale of 0 to 10, with 0 being defined as “not at all likely” and 10 representing “extremely likely.”
Customers are then sorted into three groups based on their responses:
- Detractors: Customers who rate the product/service between 0 and 6 belong to the detractors category. These customers are unhappy and will likely spread bad news or information about the product/service.
- Passives: Passives are customers who give the product/service a rating of 7-8. These customers are satisfied, but not loyal, and are likely to choose a competing product/service without thinking.
- Promoters: Customers who rate the product/service between 9 and 10 are considered promoters. These consumers are extremely satisfied and will likely recommend the product/service to others.
NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The final score can range between -100 and +100, with higher scores indicating greater customer loyalty and satisfaction.
What is the importance of NPS?
NPS is important as it provides businesses with useful information about customer loyalty and satisfaction. Businesses can identify areas of growth and make adjustments to their products or services to better meet the demands of their customers by evaluating this customer loyalty.
Additionally, NPS is a simple statistical tool that can be easily tracked over time. Businesses can see the impact of their efforts, boost customer satisfaction and loyalty by tracking changes in NPS scores.
Additionally, NPS is a widely recognized statistic used by businesses across a wide range of industries. This enables businesses to compare their NPS score with that of their competitors and gain insight into how they compare to the industry as a whole.
Which is a good NPS and which one needs improvement?
Let’s now discuss what constitutes a solid NPS score. An NPS score of 50 or more is generally considered an excellent NPS score. Scores between 30 and 50 are considered average, while scores below 30 are considered poor.
However, it’s important to note that what determines a strong NPS score varies by industry and specific goals as well as the business’s focus itself. An NPS score of 50, for example, might be considered good for a retail business, but average or even low for a luxury brand. In addition to the overall score, it is important to consider the breakdown of the score into categories of detractors, passives and promoters. A high proportion of supporters and a small number of detractors are required for a good NPS score.
A negative or very low NPS score, on the other hand, indicates that the majority of consumers are not satisfied and are unlikely to recommend the product or service to others. A low NPS score can indicate a poor customer experience, ineffective marketing, or a need for product or service improvement. Finally, what determines a good or negative NPS score varies by industry and the organization’s unique goals and objectives. Generally, an NPS score of 50 or higher is considered good, while a score of less than 30 is considered poor.
In order to have a more thorough picture of customer loyalty and satisfaction, it is necessary to analyze the score by customer category. Finally, monitoring and enhancing NPS is a useful tool for companies trying to increase loyalty and satisfaction.
Eleni Kleovoulou (MA & BSc in Communication)
Cypronetwork Consultancy Group is one of the largest market research and consulting companies. Over 35 years of successful operations and market leadership is the result of true partnership and responsible approach towards our clientele, continuous adaptation of the range and depth of services with objective based consulting and tailored made applications towards the real needs of our clients.