I thought I knew what NPS was. A few years ago I worked for a company, which had a survey with one NPS question on its website. Other companies discussed NPS, and I also read an extensive article criticizing the approach for generating the score, but not explaining the “why” behind it. In the reality, I had no idea what NPS was, how it should be used, and why it makes business sense. Most likely, I was not alone 🙂
The general calculation of NPS is simple to understand and it is a well-known concept.
The rest of the book became a wonderful discovery for me.
Interestingly, the specific question was selected based on rigorous research, and it was not the question researchers themselves expected to “win.” This was the question, which correlated the most with business success of the company.
“In certain business-to-business settings, a question such as “How likely is it that you will continue to purchase products or services from Company X?” or “How likely is it that you would recommend that we do more of our business with Company X?” may work better.”
Calculating NPS (% of promoters – % of detractors) rather than just concentrating on the % of promoters “… worth the trouble, because it ensures that a company will pay attention to both groups and because NPS correlates with growth rates more closely than does the number of promoters alone.”
The question generating the score should be “called penultimate question since it always needs to be followed up by one additional question: why?”
Companies with higher scores enjoy clear business benefits compared to their counterparts in the same market. Interesting: average scores in different markets can vary widely; it is important for the company to become a loyalty leader in its particular industry and geographical location rather than reach a particular score.
Multinational businesses with multiple product lines won’t be able to compare their absolute scores across the company. “To manage their business portfolios, these companies allocate resources toward growth opportunities in business units that enjoy NPS leadership [in their markets], and then to unit managers who develop compelling business cases that should enable them to drive NPS past the current leaders [in their markets].”
Concepts and points from the book:
- “NPS merely measures the quality of a company’s relationships with its current customers, and high-quality relationships are a necessary but not a sufficient condition for profitable growth.”
- Does it make sense to worry about NPS in regulated monopoly markets? “…No monopoly lasts forever. New technologies emerge. Regulations change. Building good customer relationships prepares a company for the possibility of increased competition. What’s more, superior NPS boosts a company’s growth potential by enabling it to expand into adjacent service areas.
- An inability of the accounting system to distinguish between “good profits” based on the creation of value for customers and “bad profits” can be overcome by NPS. “Did that $10 million in incremental profits come from new hidden surcharges, or did it come from loyal customers’ repeat purchases?”
- Should companies measure NPS in all customer segments and categories? This question can be addressed by “…two distinct processes that are best managed separately. Companies that must serve a wide variety of customers in addition to their targeted core – retailers, banks, airlines, and so on – need to minimize detractors among noncore customers, since these customers’ negative word of mouth is just as destructive as anybody’s. But investing to delight customers other than those in the core may yield little economic return.”
- Overall: “The more metrics you track, the less relevant each one becomes. Each manager will choose to focus on the number that makes his decision look good.”
- Additional potential question: “What is the most important improvement that would make you more likely to recommend us?”
- Product management team at Logitech is expected to project the release date, the retail price, and the target NPS for every new product they propose.
- TurboTax ads another question based on the initial NPS answer. Detractors are asked for the reasons for their score, passives are asked what would take for them to rate TurboTax a ten, promoters are asked what, specifically, they would tell someone to get them to try TurboTax. Promoters responses could be incorporated into future marketing messages. “One final benefit of asking promoters to express what they would tell a friend is that once they articulate the answer, they are more likely to relay it to a friend just because it’s on the tip of their tongue and the top of their mind.”
- The amount of work, planning, and follow-up required to achieve the full benefits of NPS came as a surprise to many of the companies.”
- The authors encourage companies implementing NPS to be careful about linking the score to compensation.
- It creates the focus on the score itself, rather than an improvement of customer satisfaction
- It creates pressure on the team responsible for the measurement process
- It encourages gaming and manipulation
- A lesson from companies who implemented NPS: “I wish we had known to budget more support from our IT department up front.”
Another interesting aspect of Net Promoter System is a measurement of employee advocacy and the emphasis on employee satisfaction as a starting point for the creation of happy customers.
- The question: “On a scale of zero to ten, how likely is it you would recommend this company as a place to work?”
- “With anonymous employee surveys, it makes sense to gather a little more information about possible root causes on the survey itself.”
- “Apple Retail began its Net Promoter for People process using quarterly surveys. But it found that store teams didn’t have sufficient time to diagnose root causes, implement solutions, and achieve measurable improvements before the subsequent survey. So Apple shifter to a four-month cycle.”