Modern marketing offers many possibilities and tools to calculate success and to put a product or service in a new, more palatable light. The decisive factors do not just revolve around product quality, image or advertising pressure. They also depend on how much a product entices the consumer - and the extent to which it is recommended to others. One tool for measuring customer satisfaction is the Net Promoter Score (NPS). The measurement method was invented almost 30 years ago in the United States and is based on a simple scale from 0 to 10. Here you can find out what is behind it, how to calculate the NPS and what advantages and disadvantages the measurement method offers.
What is the Net Promoter Score (NPS)?
The NPS is an important key figure for companies, as it provides information about the extent to which consumers would recommend a certain product or service to friends and acquaintances. The success of a company can thus also be "calculated" indirectly. The method is particularly attractive for small companies that have not yet built up a large customer base because it allows them to collect customer feedback relatively quickly and easily.
The NPS was created in the 1990s by economic author and strategist Fred Reichheld. The principle behind it is simple: The central question is "How likely are you to recommend product A or service B to a friend or acquaintance?" - The answer gives many companies an idea of how good their own offer is in practice and is an important yardstick for customer satisfaction.
Why referrals are so important
For companies, customer satisfaction is an important indicator and at the same time a mirror of one's own work. If someone is satisfied with a product or service, they will likely use it again. But it would be even better if consumers also voluntarily promote the product among friends and acquaintances. After all, the most effective form of advertising remains word of mouth. A personal recommendation is much more valuable than expensive outdoor advertising: It suggests that the product has already been tested by a trustworthy person and found to be good. For example, when it comes to food and hygiene products, people rely on the familiar and often stick to a tried and tested product or brand they can trust. Consequently, it is traditionally difficult for new products to establish themselves on the market without a lot of advertising pressure. A personal recommendation, therefore, makes it more likely that people will try new things. And this is where the Net Promoter Score (NPS) comes in.
What makes a good NPS?
The Net Promoter Score (NPS) is based on a simple calculation: the probability of being recommended is shown on a scale from 0 (very unlikely) to 10 (very likely). Depending on the answer, it is divided into three groups of people. On the one hand, there are the critics, also known as detractors. They choose a value between 0 and 6 because they are less convinced. There is also the possibility that they want to convince others of their criticism and thus the product or service is rated negatively. Passive, also called indifferent people, choose 7 or 8. They are classified as neutral and give the product a positive rating, even if they would not necessarily recommend it to others. The most valuable for the companies are the so-called promoters who choose 9 or 10. These consumers would be most likely to recommend the product to others.
To calculate the Net Promoter Score, the number of promoters and critics (in percentage terms) is now taken and divided. The result is between -100 and +100 percent.
An example: 100 people are asked the extent to which they would recommend a product to others. 30 people give a 9 or 10. 50 respondents choose a 7 or 8 and a further 20 respondents choose a 0 to 6. Of the 100 people, 30 percent are promoters and 20 percent detractors. The 50 passive respondents then disappear from the calculation.
The detractors are then subtracted from the promoters (30 percent minus 20 percent). The result is a Net Promoter Score of 10.
The NPS offers these advantages
The Net Promoter Score (NPS) is only an indicator that does not provide a comprehensive picture. But the survey still has many advantages for companies. These include:
- An affordable and quick method
The NPS is a cost-effective way for companies to get quick feedback without doing a lot of market research.
- Better measurement for comparability
The simplicity of the calculation makes it easy to compare the value with others. Companies can use it to quickly compare themselves with other companies that have also collected an NPS. It's a good indicator of a product or service's competitiveness.
- Fast performance measurement
Companies can easily measure their own performance with the NPS and evaluate the performance of their management in a fast-track process.
- Recognised and standardised
The Net Promoter Score (NPS) is a standardised, globally recognised and popular method for measuring customer satisfaction and optimise a company's own performance.
Limits of the NPS
The Net Promoter Score (NPS) is a practical and, above all, inexpensive means of measuring customer satisfaction and corporate performance. But the simple method also has its limits and thus a number of disadvantages:
- Little interpretative value
The meaningfulness of the Net Promoter Score (NPS) is limited. The measured value only serves as a rough indicator for an ad-hoc evaluation that hardly goes into detail and illuminates the background of why customers like or dislike something.
- Differences by industry
The NPS does not have the same meaning for every industry, because after all, things are recommended differently. If, for example, restaurants, music or food are recommended more often, the situation is different for products such as cars, underwear or medicines.
- The potential discrepancy with reality
The NPS hardly goes into detail and only reveals whether someone would recommend a product or service to others. But not whether this also happens in reality - or why something is recommended or not.
- Hardly any variation
The NPS scale ranges from 0 to 10 and thus shows little variation. For example, it seems a bit arbitrary if a very high value of 7 is not taken into account in the calculation.
- A high score does not guarantee success
There is no demonstrable link between a high NPS and the success of a company. Therefore, the NPS is only used to a limited extent as an indicator of good entrepreneurial performance.
- International differences
The Net Promoter Score is an invention from the USA and is being used increasingly there. That makes comparability in countries that speak other languages difficult to carry out.
How to use the NPS effectively
In order to be able to measure changes better, the NPS should be recorded regularly in order to be able to determine changes over time. This can be, for example, after a conversation with customer service or after an event. Regular comparability enables the value to be used effectively to adjust marketing and PR measures in a targeted manner or to carry out internal restructuring. It is also worth dividing the customer base into the NPS groups of promoters, passives and critics in order to change the target group approach accordingly. It is important to point out that customers are taking part in the survey on a regular basis, and ask proactively for feedback and provide incentives for recommendations.
Please note: The NPS just seems simple, fast and cheap. Rather, the first NPS survey begins a lengthy process that should revolve entirely around the “why”. Further measures for optimizing the product or service can only be derived with root cause research.
Further development of the Net Promoter System
The principle behind the NPS is almost 30 years old and has hardly lost any of its popularity since then, despite its limited informative value. Nevertheless, the method has been further developed over the past few decades. A new approach is the so-called Net Promoter System. In addition to the survey of the satisfaction scale, the Net Promoter System goes into more depth and is aimed primarily at critics who do not want to recommend or even criticise a product or service.
For example, the results in Customer Experience Management (CEM) are used to contact dissatisfied customers (deflectors) and ask about their backgrounds. The aim is to avert negative criticism and turn it into a positive one. But also the passives (rating 6 or 7) are specifically addressed in order to convert them into promoters. By continuously collecting the NPS, your own marketing measures can be checked and adjusted.
NPS: Appinio is your ideal contact
Simple, effective and inexpensive - these are the benefits of the NPS. The standardised measurement method gives companies the opportunity to measure customer satisfaction and the chance of recommendation. In this way, the performance of a product or service can be identified and the results can be used for further marketing measures or in the area of customer service. With a simply structured satisfaction scale from 0 to 10, the results offer a good overview.
But, as already mentioned, the NPS also has its limits: The method lacks depth because the “why” behind the ratings is not revealed. In addition, a high score does not necessarily mean success, as a possible recommendation from customers is indicated but not guaranteed.
Nevertheless, the NPS offers enough points of contact for further strategic decisions. Do you have any questions about the NPS? Then, of course, Appinio is at your disposal for advice and operations. If you want to calculate your own NPS or if you want to draw the right conclusions for your company from the results, contact us!
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