Net promoter score (NPS) calculation index: Key to success

What is the purpose of the net promoter score (NPS) for customer satisfaction?

Measuring customer loyalty and satisfaction

NPS categorizes customers into three segments based on their responses to the question: “On a scale from 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?” Those who respond with 9 or 10 are “Promoters,” 7-8 are “Passives,” and 0-6 are “Detractors.”

The score is calculated by subtracting the percentage of Detractors from the percentage of Promoters, resulting in a score ranging from -100 to 100. A higher score indicates greater customer loyalty and satisfaction.

Predicting business growth

Research shows a correlation between a company’s NPS and its growth potential. Companies with higher NPS scores often experience stronger growth, as loyal customers are more likely to make repeat purchases, spread positive word of mouth, and bring in new customers through referrals.

Studies have shown that companies with leading NPS scores grow more than twice as fast as their competitors.

Improving operational performance and service

NPS helps companies identify areas of customer dissatisfaction and operational weaknesses. By analyzing feedback from Detractors and Passives, companies can pinpoint specific issues affecting the customer experience and address these problems to improve their services and product offerings.

Real-life examples

Amazon

Amazon consistently maintains a high NPS, reflecting its commitment to customer satisfaction and loyalty. The company’s focus on customer service, including an easy-to-use website and an effective delivery system, is a key factor in maintaining an NPS that significantly exceeds the average level for the retail sector.

Amazon’s high NPS has been accompanied by impressive growth trajectories.

Costco

Costco’s NPS is often noted as one of the highest in the retail sector, sometimes reaching 70-80. This high score is linked to its quality products at competitive prices and excellent customer service, including a generous return policy.

Costco’s high NPS ensures strong customer retention rates and robust sales growth.

Southwest Airlines

In the aviation industry, Southwest Airlines is noted for its high NPS. The company’s focus on customer service, transparent pricing (such as no baggage fees), and efficient operations has earned it strong loyalty among travelers.

Southwest’s ability to maintain a high NPS has confirmed its reputation as a customer-oriented airline, contributing to its financial success and competitiveness in the industry.

Challenges and considerations

While NPS is a valuable tool, it has its limitations. It does not provide detailed data on why customers are Promoters, Passives, or Detractors, which could be crucial for specific operational improvements.

Moreover, NPS can be influenced by cultural differences in how people respond to surveys, which can impact the accuracy of international market comparisons.

Despite these challenges, NPS remains a popular and effective metric for measuring customer satisfaction and loyalty. Combined with other metrics and qualitative feedback, NPS offers a powerful tool for driving growth and improving customer service.

Examples of net promoter score in customer satisfaction

Amazon

Amazon is renowned for its high NPS, consistently scoring above 70. The company’s commitment to excellent customer service, including a user-friendly website interface, efficient delivery system, and hassle-free return policy, significantly contributes to its high ratings.

The focus on customer satisfaction has been a key factor in repeat purchases and recommendations from satisfied customers, supporting its growth across global markets.

Costco

Costco’s NPS often stands in the 70s, which is exceptionally high for the retail sector. This score reflects the company’s focus on providing quality products at low prices and its customer-oriented policies, such as generous return policies and bonuses for membership cardholders.

Costco’s ability to maintain high NPS scores has helped it to cement a loyal customer base, facilitating repeat visits and strong sales performance.

Southwest Airlines

Southwest Airlines often surpasses other U.S. airlines in NPS scores, frequently achieving ratings above 60. The airline’s focus on high customer satisfaction is achieved through friendly service, free baggage transport, and a flexible cancellation policy.

Southwest’s strategy has earned it a loyal customer base, a benefit that is reflected in high flight occupancy rates and profitability.

Slack

In the technology industry, Slack reports impressive NPS scores, significantly higher than the industry average for SaaS (Software as a Service) products.

Slack’s focus on creating a flawless user experience, combined with reliable customer support and frequent updates based on user feedback, ensures high user satisfaction and support. High NPS scores have facilitated Slack’s rapid adoption and expansion in the tech and corporate sectors.

Chick-fil-A

Chick-fil-A consistently achieves high NPS scores among fast-food restaurants, often exceeding 70. The company’s focus on providing quality food and excellent customer service forms the basis for high levels of satisfaction.

Chick-fil-A’s attention to service details has helped it develop a loyal customer base, ensuring growth and profitability.

Apple

Apple takes pride in its high NPS, which reflects its strong brand loyalty and customer satisfaction. This result is due to innovative product designs, seamless integration into the ecosystem, and exceptional support in stores and after-sales service.

Apple’s NPS scores demonstrate its market influence and the effectiveness of its customer-oriented strategies.

These examples across various industries highlight how effective management and improvement of NPS can lead to increased customer loyalty, enhance customer-to-customer recommendations, and overall business growth.

NPS serves as a crucial indicator for these companies, assessing their customer service efforts and making necessary adjustments to continually improve the customer experience.

Research on the net promoter score in customer satisfaction

Different sectors use NPS to understand consumer behavior and improve business strategies.

For example, in the banking sector, highly effective banks achieving an NPS over 50 often stand out due to quality customer service and digital offerings, while other banks struggle with lower scores due to less personalized services.

One regional bank increased its NPS from 35 to 55 over two years by improving customer interaction and community engagement, demonstrating a direct impact on customer satisfaction and loyalty.

In healthcare, NPS is used to enhance patient experiences and outcomes. Hospitals monitoring patient feedback through NPS often find that higher scores correlate with better adherence to treatment plans.

One hospital network maintained an average NPS around 70, reflecting their strong patient support and quality care.

Telecommunications companies typically face challenges in NPS due to customer service issues. However, targeted improvements can significantly affect their scores.

A national telecommunications provider managed to raise its NPS from 20 to 35 by revising its approach to customer service, illustrating how operational improvements directly influence customer perceptions and brand reputation.

Retail companies also benefit from using NPS to enhance the shopping experience. One fashion retail chain raised its NPS from 40 to 65 by investing in staff training, redesigning stores, and improving post-purchase support.

This not only improved the customer experience but also strengthened brand loyalty.

Studies across industries show that an increase of 7 points in NPS correlates with a 1% increase in revenue. Higher NPS scores often lead to better customer retention, with Promoters showing much higher loyalty than Detractors.

For example, in the services sector, Promoters demonstrated a 90% retention rate compared to 60% for Detractors.

Despite its widespread use, NPS has its limitations. It does not provide detailed insights into why customers choose specific scores and does not capture the full complexity of customer experiences.

As a result, many companies supplement NPS with other metrics such as Customer Satisfaction Score (CSAT) and Customer Effort Score (CES) to get a more comprehensive view of the customer experience.

NPS remains a valuable tool for measuring customer loyalty and satisfaction. When used correctly, it can offer critical insights into consumer behavior, guiding companies in refining their strategies to improve customer relations, operational efficiency, and financial outcomes.

Focusing on enhancing customer satisfaction is key to long-term business success.

Business facts about net promoter score

High correlation with growth

NPS is strongly correlated with company growth. According to studies conducted by Fred Reichheld, the creator of NPS, there is a clear link between a company’s NPS and its growth potential.

This stems from the fact that promoters (those who score 9-10) are more likely to repurchase and recommend the company, facilitating organic growth.

For instance, Philips Electronics reported that their divisions that improved their NPS by 10 points showed on average more than 50% greater growth compared to others.

Industry benchmarking

NPS serves as a benchmarking tool across various industries, allowing companies to measure their performance relative to competitors.

For example, in the telecommunications sector, which traditionally has low customer satisfaction scores, a leading company achieving an NPS above 35 is considered exceptional. This contrasts with sectors like financial services, where top performers often have scores above 50.

Customer retention

The likelihood of customer retention significantly increases with higher NPS scores. Data show that promoters are 5-6 times more likely to repurchase and remain loyal to the company compared to detractors.

A real-life example is a major European bank that observed a retention level among promoters at 80%, compared to only 20% among detractors. This fact prompted them to focus on turning detractors and passives into promoters.

Cost efficiency

NPS can help companies identify areas where they can reduce costs, particularly in marketing and customer service. Since promoters often generate positive word-of-mouth, companies with high NPS scores typically spend less on traditional advertising and customer acquisition strategies.

For example, a boutique hotel chain used its high NPS score (above 70) as a marketing tool, focusing on customer reviews and recommendations. This significantly cut advertising costs.

Customer feedback for improvement

NPS also acts as a direct feedback channel for companies aiming to improve their products or services. It highlights specific areas where a business needs improvement.

For instance, a software development company noted a nuance; feedback from detractors often pointed to difficulties with software installation. Addressing these issues, the company improved its NPS by more than 15 points in a year, simultaneously increasing user satisfaction and reducing churn.

Predictive nature

Research has shown that changes in NPS precede corresponding changes in revenue, making it a leading indicator of financial performance. A well-known retail chain observed a direct correlation between improvements in NPS at the store level and sales growth in the same store.

It was found that an increase in NPS by 12 points leads to a 1% increase in sales growth.

Employee engagement

There is also a correlation between employee satisfaction and NPS. Companies with high scores for employee engagement often have higher NPS ratings.

For example, a multinational corporation found that divisions with higher employee engagement rates reported average NPS scores 10 points higher than those with lower engagement scores.

Global differences

NPS scores can vary significantly across different cultures and regions due to differences in customer expectations and communication styles. A global consumer electronics company discovered this when their NPS in the US was over 60, while in Asia, it was closer to 40.

This prompted a more localized approach to customer service and marketing strategies.

NPS serves as a measure of customer opinion and loyalty, acting as a valuable tool for business decision-making, shaping customer experience, and forecasting growth. These facts highlight the breadth of its application and the depth of insights it can offer companies.

Errors in the net promoter score

Oversimplification of customer opinions

NPS reduces the complexity of customer relationships to a single number, which can lead to incorrect conclusions. It should be supplemented with more detailed feedback.

For example, a retail company may have a high NPS, indicating overall satisfaction, but this score could mask issues such as poor online customer service, reducing customer loyalty.

Cultural variations in responses

NPS can be influenced by cultural differences in how people respond to surveys. In some cultures, high scores are uncommon, potentially skewing NPS negatively.

Conversely, in other cultures, moderate scores may be considered sufficiently positive. An international hotel chain experienced lower NPS scores from guests in Japan compared to guests in the USA, not due to poorer service, but because of cultural differences in survey responses.

Lack of specificity

NPS does not provide specific feedback on which aspects of a product or service need improvement. It only indicates how likely customers are to recommend a business.

For instance, a software development company may receive a low NPS, but without additional feedback, they wouldn’t know whether the score was related to interface issues, pricing, customer support, or something else.

Timing of surveys

The timing of NPS surveys can greatly affect the results. If a customer is surveyed immediately after a positive experience, the score may be unusually high.

Conversely, if the survey is conducted after a negative incident, it may be unusually low. One airline found that NPS scores varied significantly depending on whether customers were surveyed right after booking (when excitement was high) or after flights (when experiences varied more).

Manipulation of results

Companies can unintentionally or intentionally manipulate NPS results by selectively soliciting responses from customers they consider more favorable. This can distort results and give a misleading picture of overall customer satisfaction.

A consumer electronics manufacturer was criticized for sending NPS surveys only to those customers who had positive interactions when contacting customer support, leading to an artificially high NPS.

Response rate issues

Low response rates can also lead to NPS distortions if only a small, non-random sample of customers chooses to respond to the survey. Results may not accurately reflect the views of the broader customer base.

A fitness center encountered this issue when it received an unusually high NPS from a small portion of its client base, not reflecting the views of the majority of its members.

Ignoring passive responses

The standard method of calculating NPS ignores “Passives” (scores of 7-8), focusing only on the extreme Promoters and Detractors.

This can be problematic as it disregards a potentially large segment of customers whose experiences and opinions are not extremely positive or negative but could be swayed by minor improvements or deteriorations in service or product quality.

Fluctuations over time

NPS can vary significantly due to many factors unrelated to changes in customer satisfaction, such as economic conditions, market disruptions, or competitive actions.

A bank may observe fluctuations in its NPS scores during economic downturns, as overall customer sentiments towards financial institutions become more negative, even if the bank’s service quality has not changed.

NPS is a valuable tool for measuring customer loyalty and satisfaction, but it is important for companies to be aware of its limitations and potential pitfalls.

They should use NPS as part of a broader set of customer experience metrics and supplement NPS data with qualitative feedback to gain a more complete understanding of customer satisfaction and areas for improvement.

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