Net Promoter Score (NPS)
Net Promoter Score® - a simple and effective loyalty indicator!
In recent years there has been a generally increased focus on customer loyalty as it has been found that loyal customers actually function as good "ambassadors" for your company or product. We are usually very open minded and positive about products or companies that are recommended to us by friends and family.
It is therefore with good reason that the book "The Ultimate Question", by Fred Reichheld has led to a thorough revision of the ways customer loyalty and satisfaction are measured by many of the world's large corporations.
The method is called Net Promoter Score® and it is based on customers’ responses to one single question: "How likely are you to recommend company X to a friend, colleague or business associate?"
The response scale ranges from 0 to 10 (10 is best). Depending on what your customers answer to the question, they are divided into three categories: "Promoters" (9-10), "Passively satisfied" (7-8) or "Detractors" (0-6).
The Net Promoter Score (NPS) is calculated by subtracting the percentage of "Detractors" from the percentage of "Promoters". If, for example, a company has 40% "Promoters" and 20% "Detractors" the Net Promoter Score is 20%. Companies with the most committed and loyal customers have a Net Promoter Score of 75% or more, depending on the industry.
In recent years, the Net Promoter Score has been used successfully in some of the world's largest and most recognised companies such as American Express, Microsoft, Procter & Gamble, IBM, GE, Allianz and Ebay. In Denmark companies such as Danfoss and LEGO have implemented the system.
Does it work?
The international consulting firm Bain & Co. has researched a number of industries and found that companies with the highest Net Promoter Score within their industry, on average, grow two and a half times faster than their competitors.
A major advantage of the concept is that it is easy to explain and understand for the employees in your organisation, while it may also help to focus the organisation strategically, tactically and operationally around the overall goal: satisfied and loyal customers.
Shortcomings of the NPS
One of the main shortcomings of using Net Promoter Score is that the concept does not specify which actions and measures are needed to help improve a company's current score. It is simply the score itself.
At RelationMonitor we have therefore developed a special analysis that can be connected directly to the Net Promoter Score concept. It identifies the factors that affect the company's Net Promoter Score, as well as what will have the greatest impact to improve in the given situation. On this new ground one can easily identify the resources needed to gain maximum benefit from improvement investments.
In case you are interested in knowing more about Net Promoter Score, and how to implement it effectively so it creates the most value to you or maybe, feel free to contact us on +45 70 25 88 52.
