The History of Net Promoter Score (NPS): A Simple but Powerful Tool for Customer Loyalty

If you have ever been asked to rate how likely you are to recommend a product, service, or company to a friend or colleague, you have encountered the Net Promoter Score (NPS). NPS is a widely used metric that measures customer loyalty and satisfaction based on a single question. But how did NPS come to be, and why does it matter for businesses today? In this blog post, we will explore the origins, benefits, and best practices of NPS.

What is NPS and How Does It Work?

NPS was first introduced by Fred Reichheld, a partner at Bain & Company, in his 2003 Harvard Business Review article, "The One Number You Need to Grow" . Reichheld and his team wanted to find a simple and reliable way to measure customer loyalty across different industries and contexts. They tested various questions and found that the best predictor of customer behavior was their willingness to recommend a company to others.

NPS is calculated by asking customers how likely they are to recommend a company on a scale of 0 to 10, where 0 is extremely unlikely and 10 is extremely likely. Based on their responses, customers are then classified into three categories:

Promoters are those who give a score of 9 or 10. They are loyal, enthusiastic, and likely to refer others.

Passives are those who give a score of 7 or 8. They are satisfied but not excited, and vulnerable to switching to competitors.

Detractors are those who give a score of 0 to 6. They are unhappy, dissatisfied, and likely to spread negative word-of-mouth.

The NPS is then calculated by subtracting the percentage of detractors from the percentage of promoters. The result is a score that can range from -100 (all detractors) to +100 (all promoters). A positive NPS indicates that a company has more promoters than detractors, while a negative NPS indicates the opposite.

Above 0 is good. Above 20 is favorable. Above 50 is excellent. Above 80 is world-class. The Standard in the software industry is 13.2. You can expect, based on this metric, that 60% of those customers with low scores will no longer be customers in the next years.

Why Does NPS Matter?

NPS matters because it is more than just a number. It is a powerful tool that can help businesses understand their customers' needs, preferences, and expectations. By measuring NPS regularly and consistently, businesses can:

Track and evaluate customer satisfaction and loyalty levels. Utilizing the Net Promoter Score (NPS) can provide insights into customers' perceptions of a company's products, services, and overall brand experience. Additionally, it aids in detecting ongoing trends and behavioral patterns across different customer segments.

Bolster customer retention and business expansion. By analyzing NPS data, companies can pinpoint and tackle the fundamental reasons behind customer discontent and attrition. Moreover, capitalizing on the affirmative feedback and recommendations from satisfied customers—known as promoters—can draw in new clientele and boost profits.

Strengthen customer interaction and endorsement. Implementing NPS facilitates the collection and utilization of customer input to refine product offerings and operational procedures. It also enables companies to acknowledge and incentivize their promoters, thereby fostering loyalty and encouraging brand advocacy.

How to Use NPS Effectively?

NPS is not a magic bullet that can solve all customer problems. It is a simple but powerful tool that requires careful implementation and interpretation. 

To use NPS effectively, businesses should:

Timing is key when querying customers. The Net Promoter Score query should occur post a significant customer interaction or event, like a purchase, service experience, or contract renewal. Ensure the inquiry is straightforward, brief, and uniform across all communication platforms and customer interaction points.

Engage further with a probing question. Accompany the NPS with a secondary, open-ended question to understand the rationale behind the customer's rating. This approach sheds light on what influences customer satisfaction or discontent.

Segment and scrutinize the feedback. Break down the NPS feedback by categorizing customers based on demographics, behavior, product usage, or other pertinent factors. Share these insights with key team members and leverage them to drive strategies that bolster customer contentment and fidelity.

Monitor and compare your performance. Keep a regular check on NPS trends over time and measure them against industry benchmarks or rival scores. Share these findings with customers and staff, using them to acknowledge achievements or pinpoint opportunities for further enhancement.

Conclusion

NPS is a simple but powerful tool that can help businesses measure customer loyalty and satisfaction based on a single question. By asking customers how likely they are to recommend a company to others, businesses can monitor customer satisfaction and loyalty, improve customer retention and growth, enhance customer engagement and advocacy, and use NPS effectively by asking the right question at the right time, following up with an open-ended question, analyzing and acting on the results, tracking and benchmarking the progress.