Net Promoter Score (NPS): Customer Engagement Explained

The Net Promoter Score (NPS) is a widely used metric that gauges the loyalty of a company's customer relationships. It serves as an alternative to traditional customer satisfaction research and claims to be correlated with revenue growth.

Introduced by Fred Reichheld of Bain & Company in 2003, NPS is a straightforward loyalty metric that holds companies and employees accountable for treating customers right. It centers around one simple question: "On a scale from 0-10, how likely are you to recommend our company/product/service to a friend or colleague?"

Understanding the Net Promoter Score

The Net Promoter Score is calculated based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague? The scoring for this answer is most often based on a 0 to 10 scale.

Those who respond with a score of 9 to 10 are called Promoters, and are considered likely to exhibit value-creating behaviors, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers. Those who respond with a score of 0 to 6 are labeled Detractors, and they are believed to be less likely to exhibit the value-creating behaviors. Responses of 7 and 8 are labeled Passives, and their behavior falls in the middle of Promoters and Detractors.

Calculating the NPS

The Net Promoter Score is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. For purposes of calculating a Net Promoter Score, Passives count towards the total number of respondents, thus decreasing the percentage of detractors and promoters and pushing the net score towards 0.

NPS scores are not expressed as a percentage but as an absolute number lying between -100 and +100. For instance, if you have 25% Promoters, 55% Passives and 20% Detractors, the NPS will be +5. A positive NPS (>0) is generally deemed good, a NPS of +50 is excellent, and anything over +70 is exceptional.

Benefits of Using NPS

The Net Promoter Score is a simple and intuitive measure that can be easily understood by everyone in the organization. It provides a clear measure of an organization's performance through its customers' eyes. It also allows organizations to benchmark their performance against other companies in their industry.

Moreover, NPS can be used to motivate employees and improve customer service. By focusing on the goal of increasing the number of Promoters and reducing the number of Detractors, companies can improve their customer experience and thus their NPS.

Role of NPS in Customer Engagement

Customer engagement is about encouraging your customers to interact and share in the experiences you create for them as a business and a brand. When executed well, a strong customer engagement strategy will foster brand growth and loyalty.

NPS plays a crucial role in customer engagement. It provides a clear and straightforward metric for understanding how well a company is engaging its customers. By tracking NPS, companies can identify areas where they are failing to engage customers and take steps to improve.

Using NPS to Improve Customer Engagement

Companies can use their NPS as a baseline measure of customer engagement. By tracking changes in NPS over time, companies can measure the effectiveness of their customer engagement initiatives. If NPS is increasing, it's a good sign that customer engagement is improving.

Moreover, NPS can also help companies identify specific areas for improvement. By segmenting NPS by different customer groups or different areas of the customer experience, companies can identify where they are failing to engage customers and focus their improvement efforts in these areas.

Limitations of NPS in Measuring Customer Engagement

While NPS is a powerful tool for measuring customer engagement, it is not without its limitations. One of the main criticisms of NPS is that it is a very broad measure and does not provide detailed insights into why customers are satisfied or dissatisfied.

For example, a customer might give a company a low NPS not because they had a bad experience with the company, but because they had a bad day. Similarly, a customer might give a high NPS because they had a great experience with a single employee, not because they are satisfied with the company as a whole.

Best Practices for Using NPS

When using NPS, it's important to remember that it's not just about the score. The real value of NPS comes from taking action on the feedback you receive. This means following up with customers, especially Detractors, to understand why they gave the score they did and what you can do to improve.

It's also important to remember that NPS is just one measure of customer engagement. While it can provide valuable insights, it should be used in conjunction with other measures and not as a standalone metric.

Following Up on NPS Feedback

One of the most important steps in the NPS process is following up with customers after they have given their score. This can be done through a variety of methods, including email, phone calls, or in-person meetings.

When following up, it's important to thank customers for their feedback, acknowledge their concerns, and let them know what steps you are taking to address their issues. This not only helps to improve the customer experience, but also shows customers that you value their feedback and are committed to improving.

Using NPS in Conjunction with Other Metrics

While NPS can provide valuable insights into customer engagement, it should not be used as a standalone metric. Instead, it should be used in conjunction with other metrics to provide a more comprehensive view of customer engagement.

For example, companies might also track metrics like customer satisfaction, customer retention, and customer lifetime value. By looking at these metrics alongside NPS, companies can get a more complete picture of their customer engagement.

Conclusion

The Net Promoter Score is a powerful tool for measuring customer engagement. By providing a simple, easy-to-understand metric, NPS can help companies understand how well they are engaging their customers and where they can improve.

However, like any metric, NPS is not without its limitations. It should be used as part of a broader customer engagement strategy, and not as a standalone measure. By using NPS in conjunction with other metrics and following up on customer feedback, companies can improve their customer engagement and drive growth.