Appinio Research · 06.10.2021 · 9min read
In today's world of marketing, there are a multitude of tools and strategies available to gauge success and present products or services in a more attractive manner.
While factors such as product quality, brand image, and advertising efforts are all important, it's equally crucial to understand how much a product appeals to consumers and how likely they are to recommend it to others.
This is where the Net Promoter Score (NPS) comes into play.
Developed nearly 30 years ago in the United States, the NPS is a customer satisfaction measurement tool that uses a simple scale ranging from 0 to 10.
In this guide, we'll dive into the methodology behind the NPS, how to calculate it, and the advantages and disadvantages of this approach.
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What is the Net Promoter Score (NPS)?
The Net Promoter Score (NPS) is a key metric for companies seeking to gauge the level of consumer advocacy for their product or service.
It offers insight into the likelihood of customers recommending the product or service to friends and acquaintances, making it an indirect measure of a company's success.
Small businesses can benefit from the NPS methodology as it provides a fast and simple way to gather customer feedback.
Developed by economic author and strategist Fred Reichheld in the 1990s, the NPS revolves around a fundamental question: "How likely are you to recommend product A or service B to a friend or acquaintance?"
This query provides companies with a practical understanding of the quality of their offerings and serves as a crucial benchmark for evaluating customer satisfaction.
Why are referrals so important?
Customer satisfaction is an essential gauge of a company's performance, serving as both an indicator and reflection of its efforts.
Satisfied customers are likely to continue using a product or service, but the real goal is to encourage customers to voluntarily recommend it to others.
Word of mouth is still the most powerful form of advertising, as a personal recommendation from a trustworthy source carries more weight than any costly outdoor campaign.
This is particularly true for products like food and hygiene items, where people tend to rely on familiar and trustworthy brands. It can be difficult for new products to gain a foothold in such markets without heavy advertising pressure.
However, a personal recommendation increases the chances of customers trying new things, making the Net Promoter Score (NPS) an effective tool for measuring and enhancing customer advocacy.
What makes a good NPS?
The Net Promoter Score (NPS) calculation is based on a simple question: "How likely are you to recommend product A or service B to a friend or acquaintance?"
The answer is given on a scale from 0 (very unlikely) to 10 (very likely), and respondents are grouped into three categories.
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Detractors, who rate the product between 0 and 6, are less convinced and may even try to dissuade others from using the product or service.
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Passive respondents, who choose 7 or 8, are considered neutral, providing a positive rating without actively recommending it.
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Promoters, who select 9 or 10, are the most valuable group for companies, as they are most likely to recommend the product to others.
To calculate the NPS, the percentage of promoters and detractors is determined, and the difference between the two is taken, resulting in a score that ranges from -100 to +100 percent.
For instance, if 30% of respondents are promoters and 20% are detractors, the NPS would be 10. To arrive at this score, passive respondents are disregarded from the calculation.
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Advantages of the NPS
The Net Promoter Score (NPS) may not provide a comprehensive picture but it still offers several advantages for companies. These include:
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Affordability and speed
The NPS is a cost-effective way for companies to receive prompt feedback without having to conduct extensive market research. -
Better comparability
The simplicity of the NPS calculation makes it easy to compare values with those of other companies. This helps businesses quickly assess their product or service's competitiveness in the market. -
Quick performance evaluation
The NPS allows companies to quickly measure their own performance and assess the performance of their management. -
Standardisation and recognition
The Net Promoter Score (NPS) is a standardised, globally recognised and popular method for measuring customer satisfaction and improving a company's own performance.
Disadvantages of the NPS
The Net Promoter Score (NPS) is a widely used and cost-effective method to measure customer satisfaction and corporate performance.
However, there are several limitations to this method:
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Limited interpretative value
The NPS provides a broad indicator of customer satisfaction without offering detailed insights into why customers feel the way they do. -
Industry differences
The NPS does not have the same meaning for every industry, and therefore, its usefulness varies across industries. -
Potential discrepancy with reality
The NPS only measures the likelihood of a customer recommending a product or service, without considering whether they actually do so. -
Limited variation
The NPS scale ranges from 0 to 10, and this limited range may not fully capture customer sentiment or differences between high-scoring responses. -
No guarantee of success
While a high NPS may indicate good performance, there is no direct evidence to show that it leads to success. -
International differences
The NPS was developed in the USA and may not be equally effective across different countries and cultures.
How to use the NPS effectively
To effectively use the Net Promoter Score (NPS), it is essential to record it regularly in order to track changes over time.
This can be done after a customer service conversation or event.
Regular comparisons enable companies to use the NPS effectively to adjust marketing and PR measures or carry out internal restructuring.
It is also helpful to divide the customer base into the NPS groups of promoters, passives and critics to tailor the target group approach accordingly.
To ensure regular participation and receive feedback, companies should proactively ask for feedback and provide incentives for recommendations.
It is important to note that although the NPS may seem simple, fast, and cheap, the first survey is just the beginning of a lengthy process that should focus on determining the "why" behind the score. Root cause research is necessary to derive measures for optimizing the product or service.
Research experts answer: What is the USP and how frequently should it be done?The unique selling point (USP) of NPS is its simplicity and powerful predictive capabilities. It should be conducted regularly—quarterly or biannually—to continuously monitor and improve relationships.
Further development of the NPS
The Net Promoter Score (NPS) method, despite its limited informative value, has remained popular for almost 30 years.
However, over the past few decades, the method has been further developed, resulting in the Net Promoter System.
This approach delves deeper into customer satisfaction and aims to convert critics and passives into promoters.
The system uses the results in Customer Experience Management (CEM) to identify dissatisfied customers and inquire about the reasons behind their dissatisfaction.
The goal is to address negative feedback and turn it into positive feedback. Passives are also targeted to convert them into promoters.
By continuously collecting the NPS, companies can effectively monitor and adjust their marketing measures.
Conclusions for NPS
The Net Promoter Score (NPS) is a simple, effective and inexpensive method that allows companies to measure customer satisfaction and the likelihood of recommendation.
This standardized approach provides a good overview of product or service performance and can be used to inform marketing and customer service strategies.
However, it is important to note that the NPS has its limitations, as it lacks depth and does not guarantee success. Nonetheless, the NPS can still provide valuable insights for strategic decision-making.
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