What Does Net Promoter Score (NPS) Mean in Marketing?

In marketing, NPS stands for Net Promoter Score, a marketing metric used to measure customer loyalty and satisfaction. It was developed by Fred Reichheld and Bain & Company in 2003 as a way to predict customer behavior and business growth.

How Does Net Promoter Score Work?

The Net Promoter Score is based on the idea that customers can be divided into three categories: promoters, passives, and detractors. Promoters are those who are extremely satisfied with the product or service and are likely to recommend it to others, while detractors are unhappy customers who may discourage others from using the product or service. Passives are those who are neutral and are neither promoters nor detractors.

What Are Promoters in NPS?

In the Net Promoter Score (NPS) system, promoters are customers who respond to the NPS question with a rating of 9 or 10 on a scale of 0 to 10. Promoters are considered highly satisfied and loyal customers who are likely to recommend the product, service, or brand to others. They are enthusiastic supporters who actively promote the business through word-of-mouth recommendations, positive online reviews, and referrals.

Promoters are considered valuable customers as they can help drive business growth through their advocacy and positive influence on others. Businesses often focus on nurturing and retaining promoters as they are more likely to become repeat customers and bring in new customers through their recommendations.

What Are Passives in NPS?

In the Net Promoter Score (NPS) system, passives are customers who respond to the NPS question with a rating of 7 or 8 on a scale of 0 to 10. Passives are considered moderately satisfied customers who are neither highly loyal nor actively dissatisfied with the product, service, or brand. They are typically indifferent or neutral in their attitude towards the business and may not actively promote or recommend it to others.

Passives may continue to do business with the company, but they are not as likely to be vocal advocates or actively promote the business as promoters. Businesses often see passives as an opportunity to further engage and delight them to potentially convert them into promoters and increase their loyalty and advocacy.

What Are Detractors in NPS?

In the Net Promoter Score (NPS) system, detractors are customers who respond to the NPS question with a rating of 0 to 6 on a scale of 0 to 10. Detractors are considered dissatisfied customers who are not likely to recommend the product, service, or brand to others and may even actively discourage others from using it.

Detractors may have had a negative experience or encounter issues with the business, and they are at risk of taking their business elsewhere or spreading negative word-of-mouth. For businesses, detractors represent a potential risk to customer retention and brand reputation, and it is important to address their concerns and resolve any issues to mitigate their negative impact on the overall NPS and customer satisfaction.

"Net Promoter Score (NPS) measures customer loyalty by categorising respondents as promoters, passives, or detractors. A positive NPS (above 0%) is good, while above 50% is excellent, and 70 or higher is generally regarded as world-class."

Paul Mills
CEO & Founder, VCMO

How Is NPS Calculated?

Net Promoter Score (NPS) is calculated using a simple formula based on customer responses to a single question:

1. Ask customers the question: "On a scale of 0 to 10, how likely are you to recommend [product/service/brand] to a friend or colleague?"
2. Customers respond with a rating from 0 to 10, where 0 represents "Not at all likely" and 10 represents "Extremely likely."
3. Categorise customers into three groups based on their ratings: Promoters: Customers who rate 9 or 10; Passives: Customers who rate 7 or 8; Detractors: Customers who rate 0 to 6.
4. Calculate the percentage of customers in each group by dividing the number of customers in each group by the total number of respondents, and multiply by 100 to get the percentage.
5. Finally, calculate the NPS by subtracting the percentage of detractors from the percentage of promoters.

The formula for NPS is: NPS = % Promoters - % Detractors.

The resulting NPS score can range from -100 to +100, with a higher score indicating higher customer satisfaction and loyalty, and a lower score indicating room for improvement. NPS is a widely used customer satisfaction metric that provides insights into customer sentiment and helps businesses gauge customer loyalty and identify areas for improvement in their products, services, or brand.

Example Of NPS Calculation Using Fictional Data.

Here's an example of how to calculate Net Promoter Score (NPS) using a fictional survey data:

Let's say you conducted a customer satisfaction survey and asked customers to rate your product or service on a scale of 0 to 10, with 10 being "extremely likely to recommend" and 0 being "not at all likely to recommend." You received 100 responses, and the distribution of responses is as follows:

Promoters (rated 9 or 10): 60 responses

Passives (rated 7 or 8): 25 responses

Detractors (rated 0 to 6): 15 responses

To calculate NPS, follow these steps:

1. Identify the percentage of promoters: Divide the number of promoters by the total number of responses and multiply by 100. Percentage of promoters = (Number of promoters / Total number of responses) x 100 Percentage of promoters = (60 / 100) x 100 Percentage of promoters = 60%
2. Identify the percentage of detractors: Divide the number of detractors by the total number of responses and multiply by 100. Percentage of detractors = (Number of detractors / Total number of responses) x 100 Percentage of detractors = (15 / 100) x 100 Percentage of detractors = 15%
3. Calculate the Net Promoter Score (NPS): Subtract the percentage of detractors from the percentage of promoters. NPS = Percentage of promoters - Percentage of detractors NPS = 60% - 15% NPS = 45%

So, in this example, the Net Promoter Score (NPS) would be 45%.

What Is A Good Net Promoter Score?

A “good” Net Promoter Score (NPS) can vary depending on the industry, type of business, and customer expectations. In general, a positive NPS (above 0%) is considered good, while an NPS above 50% is considered excellent. A score above 70% is generally considered world class customer satisfaction performance.

A positive NPS indicates that you have more promoters (customers who are likely to recommend your product or service) than detractors (customers who are not likely to recommend your product or service). A higher NPS suggests a stronger customer loyalty and satisfaction, and a higher likelihood of customer referrals and repeat business.

What Is A Bad Net Promoter Score?

A "bad" Net Promoter Score (NPS) typically indicates that you have more detractors (customers who are not likely to recommend your product or service) than promoters (customers who are likely to recommend your product or service). However, it's important to note that what constitutes a "bad" NPS score can vary depending on the industry, type of business, and customer expectations.

In general, an NPS below 0% is considered poor, as it indicates that you have more detractors than promoters. A negative NPS suggests that your customers are not highly satisfied or loyal, and there may be issues with your product or service that need to be addressed. A low NPS, even if it's above 0%, may also indicate room for improvement in customer experience and satisfaction.

Important Considerations When Analysing Net Promoter Scores.

It's important to keep in mind that NPS is just one metric and should be interpreted in conjunction with other customer feedback and business performance indicators.

It's also worth bearing in mind the context of your specific industry, business goals, and competitive landscape when evaluating NPS scores. Regularly monitoring and analysing NPS trends can provide valuable insights into your customers' perceptions and help guide your efforts to improve customer satisfaction and loyalty.

Global Benchmark NPS Scores

According to Survey Monkey’s global benchmark data of 150,000 organisations, the average NPS score is +32, with a breakdown as follows:

• The lower quartile of organisations (or the bottom 25% of performers) have an NPS of 0 or lower.
• The median NPS is +44. (Half of organisations have an NPS below this score, and the other half have a score that’s higher.)
• The upper quartile of organisations (or the top 25% of performers) have an NPS of +72 or higher. This is generally accepted as world class performance.

Source: https://www.surveymonkey.co.uk/curiosity/what-is-a-good-net-promoter-score/

What Are the Advantages of NPS for Measuring Customer Satisfaction?

There are several advantages of using Net Promoter Score (NPS) as a measure of customer satisfaction:

• Simplicity: NPS is a simple and straightforward metric that involves asking customers a single question ("How likely are you to recommend us to a friend or colleague?") and measuring their responses on a scale of 0 to 10. This simplicity makes it easy to administer and understand, both for businesses and customers.
• Actionability: NPS provides actionable insights that can guide businesses in improving customer satisfaction and loyalty. By categorizing customers into promoters, passives, and detractors, NPS helps identify areas that require attention and improvement, as well as opportunities to enhance customer relationships and drive positive word-of-mouth marketing.
• Predictive Power: NPS has been found to be a reliable predictor of customer behaviour, such as future purchasing decisions, likelihood to churn, and willingness to refer others. Customers who are promoters are more likely to repurchase, remain loyal, and refer others, while detractors are more likely to churn and have negative impacts on business through word-of-mouth.
• Benchmarking: NPS allows businesses to benchmark their performance against industry standards and competitors, providing context and insights into how they compare to others in the market. This can help identify areas of strength and weakness, and inform strategic decisions to stay competitive and improve customer satisfaction.
• Cost-effective: NPS is a cost-effective way to measure customer satisfaction compared to other methods, such as lengthy surveys or focus groups. It requires minimal time and resources to administer, making it feasible for businesses of all sizes to implement and track over time.
• Flexibility: NPS can be used across various industries and sectors, making it a versatile tool for measuring customer satisfaction in different contexts, including B2B and B2C markets, products, and services.

Overall, NPS is a valuable tool for businesses to measure customer satisfaction, gather insights, and take action to improve customer relationships, drive loyalty, and achieve business success.

What Are the Disadvantages of NPS for Measuring Customer Satisfaction?

While Net Promoter Score (NPS) has several advantages as a measure of customer satisfaction, there are also some limitations and disadvantages to consider:

• Limited Scope: NPS is a single-item metric that focuses solely on the likelihood of customers to recommend a business or brand to others. It may not capture the full range of factors that contribute to overall customer satisfaction, such as product quality, customer service, pricing, or other specific aspects of the customer experience. This can result in a narrow and incomplete picture of customer satisfaction.
• Lack of Context: NPS does not provide insights into the reasons behind customers' scores or feedback. It does not uncover the specific issues or areas that need improvement, and businesses may need to conduct additional research or analysis to understand the underlying drivers of customer satisfaction or dissatisfaction.
• Limited Differentiation: NPS categorises customers into promoters, passives, and detractors based on a single question and a narrow score range. This may result in customers with different levels of satisfaction being grouped together, which can limit the ability to identify subtle differences in customer sentiment and preferences.
• Reliance on Self-reporting: NPS relies on customers' self-reported likelihood to recommend, which may not always align with their actual behaviour. Customers may provide higher or lower scores based on various factors, such as social desirability bias, mood, or situational factors, which can affect the accuracy and reliability of the results.
• Lack of Industry Benchmarks: While NPS allows for benchmarking against competitors and industry standards, there may be limitations in finding relevant and accurate benchmarks for comparison, especially in niche or specialised industries. This can limit the usefulness of NPS as a benchmarking tool.
• Overemphasis on Advocacy: NPS primarily focuses on identifying promoters who are likely to recommend the business, which may prioritise advocacy over other important aspects of customer satisfaction, such as repeat purchase behaviour, loyalty, or lifetime value. This can result in a narrow view of customer satisfaction that may not fully capture the complexity and nuances of customer relationships.
• Not Suitable for all Businesses: NPS may not be suitable for all types of businesses, especially those with unique customer segments, products, or services. Different businesses may have different customer satisfaction drivers, and NPS may not capture those nuances effectively.

It's important to consider these limitations when using NPS or any other customer satisfaction measure and to supplement it with other methods and data sources to gain a comprehensive understanding of customer satisfaction and feedback.

What Are the Alternatives to NPS?

There are several alternative methods to Net Promoter Score (NPS) that measuring customer satisfaction and loyalty. Some of the common alternatives include:

Customer Satisfaction Score (CSAT)

CSAT is a simple measure that directly asks customers to rate their satisfaction with a product, service, or experience on a scale, typically ranging from 1 to 5 or 1 to 10. It provides a direct measure of overall satisfaction and can be used to track changes over time.

Customer Effort Score (CES)

CES measures the ease or difficulty of a customer's experience in using a product or service. It typically involves asking customers to rate the level of effort required to achieve a specific goal, such as resolving an issue or completing a task. CES can provide insights into the effectiveness of processes, systems, and customer interactions.

Qualitative Feedback

Qualitative feedback involves gathering open-ended feedback from customers through surveys, interviews, focus groups, or other methods. This allows customers to provide detailed feedback about their experiences, preferences, and suggestions, providing richer insights into their satisfaction drivers and areas for improvement.

Customer Loyalty Metrics

There are various loyalty metrics that measure different aspects of customer loyalty, such as customer retention rate, repeat purchase rate, customer lifetime value (CLTV), and customer churn rate. These metrics provide insights into customers' loyalty behaviours and can help assess overall customer satisfaction and loyalty.

Online Reviews and Ratings

Online reviews and ratings on platforms such as Google, Yelp, or social media provide feedback from customers in the form of ratings, comments, and testimonials. These reviews can serve as a valuable source of feedback and insights into customer satisfaction and can be used to track trends and patterns.

Voice of the Customer (VoC) Programs

VoC programs involve systematically capturing and analysing customer feedback from multiple sources, such as surveys, social media, call centre data, and other touchpoints. VoC programs provide a holistic view of customer sentiment, preferences, and experiences, enabling businesses to identify areas for improvement and make data-driven decisions.

Customer Journey Mapping

Customer journey mapping involves mapping out the entire customer journey, from initial awareness to post-purchase experience, to identify touchpoints, pain points, and areas of opportunity. This can help businesses understand the end-to-end customer experience and uncover opportunities for enhancing customer satisfaction.

It's important to select the right customer satisfaction measurement method, or combination of methods, based on the unique needs and characteristics of your business and customers. Each method has its own strengths and weaknesses, and using multiple methods can provide a more comprehensive and nuanced understanding of customer satisfaction and feedback.

Recap on NPS in Marketing.

Net Promoter Score (NPS) is a widely used customer satisfaction metric that measures customer satisfaction and advocacy based on the likelihood of customers recommending a product, service, or brand. The advantages of NPS include its simplicity, ease of implementation, and ability to provide a benchmark for gauging customer sentiment over time. NPS can also be used as a driver for operational improvements and business growth.

However, NPS also has some limitations, including its narrow focus on recommendation likelihood, potential for bias, and lack of actionable insights. It's important to use NPS in conjunction with other methods and consider its limitations when interpreting results.

About VCMO

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