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Net Promoter Score

The growth of a company is highly dependent on its satisfied customers. Net Promoter Score is a simple yet powerful method to measure customer loyalty. The approach was devised by Bain consultant Fred Reichheld. The method involves asking a simple question to customers - How likely is it that you would recommend [the company] to a friend or colleague? The customer then responds on an 11 point scale - from 0 (not at all likely) to 10 (extremely likely) depending upon customer's satisfaction level with the concerned company.

Based on the response, customer is categorized into three distinct three groups:

Score 9-10
These are your "Promoters" - Very satisfied and will boast your product or service whenever they get a chance. They will buy more from the company and do not require major retention effort.
 
Score 7-8
They are your "Passively Satisfied" customers. Passives are generally positive about the company but significantly less valuable than Promoters. Passives may be satisfied but that may not be adequate in the long term.
 
Score 0-6
They are the "Detractors" - fairly unsatisfied with you - Most likely to leave you for a competing product or service and are more costly to serve due to their dissatisfaction. Detractors spread more than 80% of the word of mouth on a brand – we are much more likely to tell our friends bad things about our products than the good things. For purchase of a consumer product like a camera, this can have a major impact on sales.

Net Promoter Score = %Promoters - %Detractors

A score of 75% or above is considered quite high. Along with the question on NPS rating, companies can also ask some open-ended questions or solicit reasons to elaborate the rating. The detailed information can then be summarized and presented to leadership team and respective departments for follow-up action.

Supporters of the Net Promoter Score approach claim the score can be used to direct organization’s effort to improve products and services keeping customers at the centre. They further claim that a company's Net Promoter Score correlates with revenue growth. The linkage between NPS and revenue growth has been discussed at length in The Ultimate Question: Driving Good Profits and True Growth written by Fred Reichheld of Bain & Company, and "Answering the Ultimate Question" by Richard Owen and Laura Brooks. The NPS approach has been implemented by a large number of large companies, including Philips, GE, Allianz, The Wall Street Journal, Bearing Point, P&G, Intuit, American Express, and Westpac Banking Corporation.

General Electric uses Net Promoter Score to drive process excellence for its customers, and uses NPS as a metric to appraise its leaders. Procter and Gamble uses Net Promoter Scores to measure the health of its brands. Allianz uses Net Promoter Scores to help it achieve what it calls "customer-centricity".

Companies in monopolistic industries tend to have low NPS. These companies exhibit absence of innovation, quality and customer service – the things that drive NPS. The best performing companies are ones that make an explicit focus on customers, provide superior service and constantly challenge themselves to improve their offer to customers. A classic example would be Singapore Airlines. Singapore being a small country, Singaporeans don’t require any domestic flights. Inspite of that, when Singapore Airlines was started in 1972, it had to compete against a large number of well established, foreign airlines. Due to its focus on innovation and superior customer service, Singapore Airlines is one most popular and profitable airline in the world. It was the first airline to offer hot meals, hot towels, free beverages, personal entertainment systems, free headsets, on demand entertainment systems, etc.

The benefits of NPS based loyalty measurement can be summarized as follows:

  • It’s simple to implement and easy to measure. Due to increasing availability of Online Survey tools, one can get response from customers and measure loyalty in a few days time.
  • For companies with diverse product and service range, a single metric can provide good understanding of customer's appetite for future engagements with the company.
  • With the power of word of mouth and social networks, NPS can provide almost real-time feedback on its product and services to enable quick corrective actions.

Most companies pride themselves on having a ‘loyal’ and ‘satisfied’ customer base. The companies confuse a lack of complaints with a truly happy, loyal customer. NPS is a true indicator of loyalty and future behavior and, therefore, sales growth.

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