Net Promoter Score (NPS)

Definition

Net Promoter Score (NPS) is a metric used to gauge customer loyalty and satisfaction by asking customers how likely they are to recommend a company's product or service to others on a scale from 0 to 10. This score helps businesses identify their promoters, passives, and detractors, providing valuable insights into customer perception and areas for improvement. Companies use NPS as a performance management tool to align their strategies and operations with customer needs and enhance overall customer experience.

5 Must Know Facts For Your Next Test

1. NPS is calculated by subtracting the percentage of detractors (customers who score 0-6) from the percentage of promoters (those who score 9-10), resulting in a score that can range from -100 to +100.
2. A higher NPS indicates greater customer loyalty and satisfaction, making it a valuable indicator of a company's performance and future growth potential.
3. Companies often track NPS over time to measure the impact of changes in products, services, or customer experience initiatives.
4. The NPS survey typically consists of one main question regarding recommendation likelihood, followed by an open-ended follow-up question asking for the reason behind the score given.
5. Using NPS can help organizations identify specific areas for improvement, fostering a culture focused on enhancing customer experience and addressing concerns of detractors.

Review Questions

• How does Net Promoter Score serve as a performance management tool for businesses?
  • Net Promoter Score serves as a performance management tool by providing companies with insights into customer loyalty and satisfaction levels. By identifying promoters and detractors, businesses can focus their efforts on improving the customer experience for those who are less satisfied. This understanding allows companies to tailor their strategies to better meet customer needs, ultimately driving growth and enhancing brand loyalty.
• Discuss the implications of having a low NPS for a company's reputation and growth strategy.
  • A low NPS can have significant negative implications for a company's reputation and growth strategy. It signals that a considerable portion of customers are dissatisfied and unlikely to recommend the brand, which can lead to decreased customer acquisition through word-of-mouth referrals. Companies may need to reevaluate their products, services, or overall approach to customer experience in order to address underlying issues, rebuild trust, and improve their score.
• Evaluate how tracking Net Promoter Score over time can influence organizational change within a company.
  • Tracking Net Promoter Score over time can greatly influence organizational change by highlighting trends in customer loyalty and satisfaction. By analyzing shifts in NPS data, organizations can identify what strategies are effective or where adjustments are needed. This continuous feedback loop encourages companies to be responsive to customer input, fostering an adaptive culture that prioritizes enhancing the customer experience. As leaders see the direct correlation between improvements in NPS and business outcomes, it can motivate further investment in customer-centric initiatives.

Related terms

Customer Satisfaction (CSAT): A measurement that reflects how products or services meet or exceed customer expectations, typically captured through surveys.

Customer Effort Score (CES): A metric that assesses the ease of customer interaction with a company, measuring how much effort customers must exert to resolve an issue or obtain a service.

Loyalty: A customer's commitment to repurchase or continue using a brand, often driven by positive experiences and satisfaction.