Net Promoter Score (NPS®) - past, present and future

In today’s fast-paced business world, customer experience is often the key differentiator between success and failure. Companies invest in creating exceptional experiences that not only meet the needs of their customers but also encourage customer loyalty.

One popular metric for evaluating customer loyalty is the Net Promoter Score (NPS®). First introduced in the early 2000s, NPS® has become an essential tool for measuring customer satisfaction and predicting future growth.

In this blog post, we’ll explore the history of NPS®, why it is such a useful metric for businesses, some critiques of the system, and what can be done to enhance its value for modern organisations.

The History of Net Promoter Score (NPS®)

The story of Net Promoter Score begins in 2003, when Frederick F. Reichheld, a business strategist and author, published a groundbreaking article in the Harvard Business Review titled "The One Number You Need to Grow". Reichheld’s argument was simple but powerful: businesses could gain tremendous value by focusing on a single metric that directly correlated to customer loyalty and business growth. That metric, he proposed, was NPS®.

Reichheld's research was built on decades of work exploring the relationship between customer satisfaction and company performance. He wanted a metric that would be straightforward, easy to understand, and yet highly predictive of a company's growth trajectory. He observed that while customer satisfaction surveys and loyalty programs were widely used, they often failed to provide actionable insights or focus on the real driver of long-term success - customer advocacy.

To address this gap, Reichheld proposed the concept of Promoters, Passives, and Detractors - the three groups that would make up a company’s customer base, according to how they would respond to a simple question:

"On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?"

Based on the score they gave, customers are grouped as follows:

• Promoters (score 9-10): These are loyal customers who are highly likely to recommend the company and are enthusiastic about its products or services.
• Passives (score 7-8): These customers are satisfied, but not passionate. They are unlikely to actively promote the company, but they are also not detractors.
• Detractors (score 0-6): These customers are unhappy with the product or service and may actively discourage others from using it.

Once customers have been categorised into one of these three groups, the NPS® score is calculated by subtracting the percentage of detractors from the percentage of promoters:

NPS® = % Promoters − % Detractors

The final score can range from -100 to +100, with higher scores indicating a higher level of customer satisfaction and loyalty.

Following Reichheld’s article, the concept of NPS® quickly gained traction among businesses. In 2006, Reichheld published the book The Ultimate Question, where he further elaborated on the concept of NPS® and its potential to transform how businesses approach customer relationships. He argued that companies with high NPS® scores tended to grow faster, as they not only retained customers more effectively but also attracted new ones through positive word-of-mouth.

Over time, the NPS® metric became widely adopted by companies across various industries, including technology, retail, and hospitality. Today, it is one of the most widely used customer experience and loyalty metrics in the world, with companies such as Apple, Amazon, and Netflix famously using it to gauge customer satisfaction.

Why NPS® Is a Useful Metric

Net Promoter Score has become a cornerstone of customer experience (CX) management due to its simplicity, scalability, and its ability to correlate with business outcomes. Below, we’ll explore why NPS® is such a useful metric for businesses:

1. Simplicity and Clarity

One of the most appealing aspects of NPS® is its simplicity. With just a single question, companies can gain insight into the overall sentiment of their customer base. This makes it easy to administer, analyse, and track over time. Unlike more complex customer satisfaction surveys, which can be time-consuming and difficult to interpret, NPS® provides a clear snapshot of customer loyalty with minimal effort.

This simplicity also means that the metric can be used across various industries and customer segments. Whether you are a small business or a multinational corporation, NPS® can be tailored to suit your needs and offer insights into the quality of your customer relationships.

2. Predictive Power for Growth

Numerous studies have shown a strong correlation between NPS® and business growth. Companies with high NPS® scores tend to experience higher customer retention, more referrals, and greater customer lifetime value. In fact, Reichheld’s research suggests that a 10-point increase in NPS® can lead to a 12% increase in revenue growth.

The reasoning behind this correlation lies in the idea that promoters - those who score 9 or 10 on the NPS® scale - are not only more likely to stay loyal but also more likely to act as brand advocates, recommending the company to their friends, family, and colleagues. This organic, word-of-mouth marketing is a powerful driver of business growth.

3. Actionable Insights

NPS® offers businesses actionable insights that they can use to improve customer experience. For example, by identifying detractors, companies can follow up to understand the specific pain points that led to their negative perception. Addressing these concerns directly can help improve customer satisfaction and reduce churn.

In addition to identifying areas for improvement, NPS® can also be used to track progress over time. By regularly collecting NPS® data, companies can measure the impact of changes to products, services, or customer service practices, making it a valuable tool for continuous improvement.

4. Alignment Across Teams

Because NPS® is a simple metric, it is easy for different teams within an organisation to rally around it. Whether it’s the product team, customer service department, or marketing division, NPS® provides a common language for discussing customer loyalty and satisfaction. This alignment fosters cross-functional collaboration and encourages all employees to focus on delivering a better customer experience.

Critique of NPS®

Despite its widespread adoption, Net Promoter Score is not without its critics. While many businesses swear by its simplicity and utility, some argue that it is too simplistic and fails to capture the full complexity of customer sentiment. Let’s take a closer look at some common critiques of NPS®.

1. Lack of Granularity

NPS® categorises customers into just three groups: promoters, passives, and detractors. This oversimplification means that a lot of valuable information may be lost. For example, a customer who rates the company a 7 (Passive) might have had a fairly positive experience, but there is little understanding of what exactly influenced their score. A more detailed breakdown of customer sentiment could provide deeper insights into specific areas that need attention.

Additionally, the NPS® score itself does not capture the "why" behind the score. While businesses can follow up with customers to understand their reasons for rating the company as they did, this step is often overlooked. As a result, NPS® data alone may not provide enough actionable information to make meaningful improvements.

2. Subjectivity of the Question

The core NPS® question "How likely are you to recommend our product/service to a friend or colleague?" can be subjective and context dependent. Some customers might interpret the question differently, depending on their personal experiences or expectations. For instance, a customer might give a high rating because they are generally satisfied with the product, even if they have no intention of recommending it to others. Conversely, a detractor may have rated the company poorly based on one isolated negative experience, even if they are otherwise loyal customers.

Because of this subjectivity, NPS® alone may not always provide a completely accurate representation of customer loyalty.

3. Limited Focus on the Customer Journey

NPS® measures loyalty at a single point in time but fails to take into account the customer journey as a whole. A customer might be a promoter during one interaction but a detractor during another. For example, they might love a product but have a bad experience with customer service, leading to an overall low NPS® score. This snapshot approach means that NPS® does not account for the complexities of the customer experience, especially in multi-touchpoint journeys.

4. Risk of Overemphasis on a Single Metric

Focusing solely on NPS® as a measure of success may lead to tunnel vision. While NPS® can provide valuable insights, it should not be the only metric used to evaluate customer loyalty. Relying too heavily on NPS® could cause businesses to overlook other critical factors, such as customer retention rates, customer lifetime value, or net revenue retention. It’s essential to use NPS® in conjunction with other key performance indicators (KPIs) to get a more holistic view of customer satisfaction.

How to Make NPS® More Useful

While NPS® is undeniably a valuable tool for measuring customer loyalty, there are ways to enhance its effectiveness and overcome its limitations.

1. Supplement NPS® with Open-Ended Feedback

To address the critique of NPS® being too simplistic, companies should encourage open-ended feedback from respondents. Asking customers to explain why they gave a particular score can provide invaluable insights into specific pain points or areas of improvement. Combining quantitative NPS® data with qualitative feedback creates a more comprehensive view of customer sentiment.

2. Segment Your NPS® Data

Rather than analysing NPS® on an overall company level, businesses can segment their NPS® data based on factors such as customer demographics, product usage, or customer touchpoints. This can help identify patterns and trends within specific customer groups, allowing for more targeted improvements. For example, a company might find that customers who interact with their support team rate NPS® lower than those who do not, indicating a potential area for improvement in customer service.

3. Track NPS® Across the Entire Customer Journey

To gain a deeper understanding of customer sentiment, companies should track NPS® across multiple touchpoints along the customer journey. This could include pre-purchase experiences, the onboarding process, product usage, and post-purchase follow-up. By measuring NPS® at different stages, businesses can identify where customers are experiencing friction and take steps to address those pain points.

4. Use NPS® in Combination with Other Metrics

While NPS® is a valuable tool, it should not be the only metric used to assess customer satisfaction. Companies should also track other metrics such as Customer Satisfaction (CSAT), Customer Effort Score (CES), and Customer Retention Rate to gain a more comprehensive understanding of the customer experience. Using a variety of metrics ensures that businesses do not overlook critical aspects of customer loyalty. And metrics aside, introducing qualitative elements into customer satisfaction measurement will add valuable context and rich data.

Conclusion

Net Promoter Score (NPS®) has come a long way since its inception in the early 2000s, becoming one of the most widely used metrics for measuring customer loyalty and satisfaction. Its simplicity, predictive power, and ability to drive customer-focused business decisions have made it an indispensable tool for companies seeking to improve customer experience and drive growth. However, as with any metric, NPS® has its limitations, and businesses must be careful not to rely on it in isolation.

By supplementing NPS® with qualitative feedback, segmenting data, tracking the entire customer journey, and combining it with other metrics, businesses can make NPS® an even more effective tool for driving customer loyalty and ensuring long-term success. Ultimately, the key to leveraging NPS® effectively lies in using it as part of a broader customer experience strategy - one that considers the unique needs, behaviours, and expectations of customers at every stage of their journey.