Understanding NPS and How It Can Benefit your Business

Measuring customer satisfaction is an essential exercise for all companies; contributing to business development, product development, as well as a factor in improving customer and support services.

The Net Promoter Score® or NPS is a management tool used by companies to gauge the strength of their customer relationships, and offers an alternative to standard customer satisfaction research.

It is a widely used and highly regarded system for both measuring loyalty and gathering valuable feedback that can be used to guide future business strategies. Understanding NPS and how it works is important for companies that want to build long-lasting customer satisfaction and relationships.

Understanding NPS

Introduced by Fred Reichheld in 2003, Net Promoter Score® (NPS) measures the level and strength of loyalty that exists between a company and its customers. It is based on the fundamental perspective that customers can be divided into three categories: Promoters, Passives, and Detractors.

The purpose of an NPS survey is to evaluate overall customer loyalty to a brand or company, rather than satisfaction with a specific product or service element. Understanding NPS can help companies to identify key trends in customer engagement and reduce customer churn.

It is a more accurate way to measure customer loyalty; and determine the likelihood that the customer will buy again, positively promote the company and resist switching to competitors than traditional customer satisfaction surveys.

How It Works

A company’s Net Promoter Score® is designed to predict the likelihood of a customer to repurchase or refer the company, by asking a single direct question - How likely is it that you would recommend [your company] to a friend or colleague?

Customers respond on a rating scale of 0 – 10 and, based on response, are categorised as follows:

  1. "Promoters" are loyal enthusiasts who keep buying from you and urge their friends and colleagues to do the same.

  2. "Passives" are satisfied but unenthusiastic customers who can be easily wooed by the competition.

  3. "Detractors" are often unhappy customers trapped in a bad relationship.

NPS is then calculated by subtracting the percentage of customers who are detractors from the percentage of customers who are promoters.

understanding nps

Why Use NPS?

Word of mouth marketing is probably the most valuable form of advertising for your company, and probably the one most trusted by consumers.

When you adopt the Net Promoter system, you are essentially asking your customers whether or not they’re promoting your company to others. It is the easiest and quickest way to learn how you are perceived by your customers.

The NPS methodology has been adopted by companies all over the world, from small business to leading multinational corporations, to assess and measure customer satisfaction.

  • Quick and Easy. The Net Promoter Score® is asked and answered in a single question. It’s also easy to calculate; requiring only basic adding and subtracting.
  • Easy to Measure. Understanding NPS is simple. Your Net Promoter Score® clearly shows how well your company is performing in the eyes of your customers, using straightforward terms that are easy to understand.
  • Reliable. Widely used by some of the world’s largest and most successful companies to measure and improve customer loyalty and satisfaction.
  • Measurable Insights. Provides valuable and tangible insights into how your company is performing, and how it compares to competitors. These insights can then be used to track and measure future performance against past benchmarks.

Measuring loyalty can be done in several ways; but when it comes to accurately measuring overall levels of customer satisfaction, loyalty and likelihood, a NPS program can be a better predictor than traditional methods.

Understanding NPS and its benefits can help companies to install a best practice framework for collecting, managing and acting on customer feedback; as well as driving long-term improvements, performance and growth.

If you are looking to implement an effective NPS program in your company or just want to learn more about Net Promoter Score®, B2B Research can provide the necessary information, services and survey software tools to ensure success.

 

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