In today’s world, the customer matters more than ever. Great companies understand that happy customers will continue to buy from them, buy more, and tell others. Focusing on customer satisfaction and building brand loyalty can be a sales strategy in itself that can lead to long-time success. So, how do you determine your customer’s loyalty? More than two thirds of Fortune 1000 companies are now turning to Net Promoter Score (NPS), developed by Fred Reichold, Bain & Company. NPS is an alternative to traditional customer satisfaction research that can give you a real sense of how your customer’s feel about your brand.
Calculating NPS to Measure Customer Satisfaction and Brand Loyalty
To determine NPS customers are surveyed on one single question: “On a scale of 0 to 10, how likely are you to recommend this company’s product or service to a friend or colleague?” The customer’s response will then classify them into 3 different categories: promoters, passives, and detractors.
Promoters are customers that gave a 9 or 10 rating. They love the company and its
products, and are likely to tell other potential buyers about their great experience.
Passives are customers that gave a 7 or 8 rating. They are somewhat satisfied, but
would very likely switch to a competitor if they were given a reason to switch.
Passives are not saying anything negative, but also not promoting to others.
Detractors are customers that gave a 0 to 6 rating. These customers are not happy
with their experience with the business or product. They are the customers that
won’t be buying again, and will likely tell others about their negative experience.
The Net Promoter Score is calculated by subtracting the percentage of detractors from the percentage of promoters. Let’s look at an example calculation:
“Example Company” surveys 300 customers
Ratings Returned: 10/10 = 39 4/10 = 4
9/10 = 54 3/10 = 4
8/10 = 68 2/10 = 2
7/10 = 58 1/10 = 11
6/10 = 25 0/10 = 17
5/10 = 15
Total Promoters (9 or 10 ratings): 39 + 54 = 93
Promoter % = 93 / 300 = 31%
Total Passives (7 or 8 ratings): 68 + 58 = 126
Passive % = 126 / 300 = 42%
Total Detractors (0 to 6 ratings): 25 + 15 + 4 + 4 + 2 + 14 + 17 = 81
Detractor % = 81 / 300 = 27%
Net Promoter = 31% - 27% = 4%
Deciphering Your Results
Net Promoter Score can generate a score between +100% (everyone is a promoter) to -100% (everyone is a detractor. So, what’s a good score? Typically, a score that is positive (above 0%) is considered good, and a score of 50% or more is considered excellent, though scores are highly variant on many factors including the type of business, country, culture, what you’re using NPS for, and even where you ask your customers in your survey. For example telecommunications services are much more likely to generate lower scores than travel services, and mobile services in Europe have a much greater NPS than mobile services in Australia. So, although it’s nice to have something external to bump up against, using external benchmarks is not a good idea. The best use of your NPS is as an internal measure to understand where your customer’s loyalty is with your business. Be consistent in when you ask your customers, how you ask your customers, and the survey you use. The more consistent you are the more accurate and valuable your score will be. Once you have your NPS, work to move it up and increase your brand loyalty.
Understanding the Truth in the Results
Although 50% is generally considered excellent, don’t get too wrapped up in the number, and don’t get caught patting yourself on the back too quickly. Let’s look at what 50% really means. For a score of 50% NPS there are only so many ways you can get this score. Let’s look at these scenarios.
Scenario A Scenario B Scenario C
100 customers surveyed 100 customers surveyed In between options A and B
50% give 9 or 10 rating 75% give a 9 or 10 rating
50% give a 7 or 8 rating 0% give a 7 or 8 rating
0% give a 0 to 6 rating 25% give a 0 to 6 rating
NPS = 50% - 0% = 50% NPS = 75% - 25% = 50%
Which scenario is better? Although in Scenario B you have more highly loyal customers, you also have more highly dissatisfied customers. If you use a the general rule that highly satisfied customers tell 1-2 other people and highly unsatisfied customers tell 5-10 others, in this scenario you have 75-150 others being told how great you are, and 125-250 others being told how bad you are. That doesn’t sound so great. On the flip side, in Scenario A, you have 50-100 people being told how great you are and no one being told you are bad. Sounds much better, and definitely the better scenario, but if you really think about it, even in Scenario A you only have 50% of your customers truly excited about you. That doesn’t seem like the ultimate goal to be striving for. So, before you go jumping up and down for the number you get, think about what it really means and what your opportunity is moving forward. Keep your celebrations and high fives for improving on your previous result.
Making NPS Work
In order for Net Promoter Score to really help you improve your brand loyalty follow these guidelines:
Company Adoption – ensure that everyone understands NPS, what it means, and how
to calculate it. From senior management through the entire organization it’s important
to eat, sleep, and breathe NPS and its importance.
Analyse the Data and Why – as stated above, don’t just focus on the number but dig
deeper to what’s really going on and why you’re getting the scores you’re getting.
Follow up with customers from all ends of the ratings to understand why they gave the
rating they did.
Empower Action – employees need to be given the power to act on NPS feedback
received. Give all employees the ability to make it right. Empower them to do what’s
needed to turn the detractors into passives and the passives into promoters.
Rewards and Recognition – recognize employees that generate high NPS scores and
those that turn customer’s experiences around. Reward them as much as you’d reward
sales and other areas of your business for high performance (or maybe even more so).
Be Consistent – be consistent in your commitment to NPS, how you speak about NPS,
and how you use NPS (when, where, how). The more consistent you are the more
accurate results you will get and the more impact it will have on your business.
Other Applications of NPS
NPS can be used to measure satisfaction and loyalty beyond customers that have bought your product or service. It could be used to better understand the experience of your non-buying customers, for example those that came to your store but didn’t buy. This could give you a better understanding of how those customers feel about you, and maybe even some indicators as to why they’re not buying. NPS could also be used to measure satisfaction and loyalty of employees, by asking them the same question as the customer NPS question: “On a scale of 0 to 10 how likely are you to recommend this job to a friend or colleague?” There are a number of different areas that NPS can be used to increase satisfaction and loyalty to your business.
Understanding and achieving brand loyalty is not easy, but in today’s business is central to success. High customer loyalty and satisfaction means customers that buy again, buy more, and tell others, and ultimately continued results and growth year after year. Net Promoter Score is the secret management tool that many great businesses are using to measure and increase their customer’s loyalty, why not do the same?
Launch365 specializes in training, coaching and mentoring entrepreneurs through business startup and on core business skills. We provide training and coaching on using Net Promoter Score to build brand loyalty. If you would like to discuss how we could help you with your business or on these skills, contact us at: www.launch365.ca/contact-us. To download our startup guide titled “Startup Success Blueprint” for free go to: www.launch365.ca/startup-success.