Since its invention in 2003 by Bain & Company, the Net Promoter Score (NPS) has consistently been regarded as one of the simplest yet holistic indicators of customer loyalty. But the debate always arises, does it stand the test of time and is NPS relevant in 2020?
Let’s take a look at the context first. Measuring customer loyalty is indeed important for businesses for a magnitude of reasons!
Firstly, it gives you an indication of your company’s performance. Of course, if your products and services are loved by your customers, it will translate into your company’s financial success. The more satisfied your clients, the more your company will be able to achieve market share.
According to Invesp, the probability of selling to loyal customers is 60% while only 5-20% for new customers. This is huge. Calculating customer loyalty gives you insights into the customer segments who are most likely to buy from you again. Knowing and targeting your raving fans gives a boost to brand image and results in an increased reputation through word-of-mouth marketing.
“loyal customers spend 67% more than new ones through repeat purchases, larger cart sizes, and frequent upsells”– Adobe
Now that we know the importance of having repeat customers and a referral program, let’s see how NPS helps us achieve these goals.
In 2020 where the landscape is more competitive than ever before, one thing that can truly differentiate you from others is delivering exceptional customer experiences. This is the single defence companies have that are stopping consumers from buying from cheaper, faster, more convenient competitors.
Covid-19 has left a huge scar on the way conventional businesses work in 2020 and will surely have a lasting impact beyond. At the time of writing, it’s evident that consumers are being extremely careful with their disposable income and are not committing to any new significant spends. At the same time, many businesses are facing a battle of trying to retain as much revenue as possible.
It is at this time that it is even more imperative than ever that we build a bubble around and protect our existing customers.
Hearing their opinions and feedback as your guiding star will help you navigate such an unprecedented challenge. Listen to what they would like and expect from you over the next 12 months then work to deliver it. In such unprecedented times the wants and needs of our consumers would have shifted and we will only understand them if we listen.
Calculating your NPS score not only helps you keep customers engaged, but it also helps you identify the touch-points that are most important to them. It’ll give you a hint on what improvements would yield better results.
NPS also flattens your curve of customer segmentation to qualify consumers for up-selling and cross-selling techniques. Your promoters will be the most likely to buy more of your products. Knowing your promoters will help you target the right people for the right kind of promotion.
There are many reasons why companies like Apple, Netflix and Amazon still rely on this metric to quantify the level of customer experience they are delivering. It’s not only convenient to collect and calculate, but also an effective tool in predicting consumer interest and behaviour – both of which are necessary to attract and retain buyers.
Here’s your free guide to NPS
Wondering what NPS is and how to calculate it? Here’s a brief guide compiled in the form of an infographic. Get it for FREE!
What makes NPS unique is its ease of calculation and the ease of interpretation. A simple whole number speaks volumes regarding the customer experience you provide and the type of experience actually perceived by your customers. This metric is then easily benchmarked against other competitors in your industry and even cross departments within larger enterprises – helping you identify where there are opportunities to improve.
As a product or service provider, we don’t often walk the path that a customer does. We tend to overlook many off the hurdles that result in our client’s discomfort or even frustration. This leads to customers churning away to competitors, leaving you wondering what went wrong. The NPS, along with other customer satisfaction metrics, give you a clear indication of which costumers are Promoters and which are Detractors.
NPS works by asking a simple one-line question from the users. In our case, it would be:
We recommend that this question is then followed by another question that asks the reason for their previous answer. Once we get this metric, we simultaneously get a pool of feedback which is a mix of compliments, suggestions and complaints.
Customer feedback helps managers make informed decisions in particular areas that need attention. It also helps to understand clients and their needs, likes and dislikes which in turn helps companies customise their customer experiences. This decade is the decade of personalisation. Consumers are actively seeking out personalised experienced.
Customisation is a trend not new to millennials – in fact it is now an expectation. The power of data has enabled big companies to earn millions by simply recommending relevant products and services through the use of targeted ads and Artificial Intelligence. Consumers expect you to understand their wants and needs.
Similarly, using NPS, you get an idea of what your customer is interested in, their likes and dislikes. You get a clue of what to pitch to them to expect a higher conversion rate and what to avoid. Knowing the preferences of your raving fans is a sure-fire way of implementing better marketing strategies, increasing customer retention and achieving high profits.
Referral marketing is one of the most effective marketing channels for businesses in such a competitive landscape. Never before has an intimate referral held so much significance in a prospects buying decision.
Imagine the scenario. You want to rent a car and you begin with a search online. Instead of finding the best option right away, you end up leaving even more confused. You call a friend to inquire about the options and here she recommends you the rental service she’s used before that she was very happy with. Bingo! You haven’t searched for it yourself and yet you’ve already developed trust and decide to buy from them. This social proof and recommendation is critical.
NPS helps you to identify the customers who are super happy with you. These are the ones who are most likely to bring you referrals and the ones you should be prompting to do so.
Over the years we’ve heard many myths that discourage the use of NPS. We’ll bust them one by one.
Well, there is always a ‘tolerance’ in figures and calculations. If 60% of your customers are promoters, as a Marketing Strategist, you must know that not all 60% will in true essence go about flattering your brand. What NPS is meant to calculate is the number of consumers that are ‘happy’ with your company. With this information, you’re supposed to forecast future sales, understand customer segments, devise marketing strategies and make improvements.
NPS is not meant to give you an exact number of recommendations that you’ll be getting. Many companies think the number of promoters means the same number of referrals they’ll be getting very soon which is a very wrong interpretation. If your definition of NPS is this, then you’ll certainly be disappointed by the inconsistency in consumer’s stated intentions and their actual behaviour.
As stated above, there’s always uncertainty in calculated values when we try to project future sales or revenue growth. The problem is not with NPS but with all calculations done in all subjects worldwide.
Limiting our discussion to NPS and revenue growth, the statement is evidently false. NPS does correlate to a company’s revenue growth. If not in exact figures, it does give you an idea of how much increase or decrease in revenue might be expected at the end of the financial year.
When you carry out a survey and find out 50% of your customers are not willing to recommend you, every sane manager will automatically get their facts straight. If 50% of your consumers aren’t going to be repeat customers, you will be losing revenue growth and you’ll be needing to invest in improvement strategies, acquisition, marketing and even compensation to the unhappy customers. The analysis is not a mere philosophy but is done through proper software systems that make logical calculations and give concrete answers.
Trained managers are able to analyse the reports and make fast and better decisions timely. Had NPS not been able to correlate the company’s revenue growth, big companies like Apple and Netflix would have never really relied on it!
Many people say that businesses deliberately declare higher values of NPS by having their happiest customers to participate in the survey.
The statement is not a lie and it can be done. But if you’re to remain sincere and true to your own business, nobody would ever do that. If companies were to cheat, who do you think they’ll be cheating? The fake numbers will only lead to their own misunderstanding and misinterpretation leading to big chaos.
NPS is meant to aid managers with the decision-making process. It’s not intended to show a brand’s worth in any way. If you’re looking out to streamline your operations and get a headstart with marketing and promotions, NPS is your thing. But if you’re seeking to compete in the market by declaring the highest NPS, then you’re in the wrong field.
To conclude, there is no one ‘one-stop’ satisfaction metric that would magically be a solution to all your customer experience needs. NPS is undoubtedly very important of those, but using a good mix of all satisfaction metrics will help you uncover all facets of consumer psychology and sentiment.
Schedule a free demo here to explore how NPS can transform your business into an overnight success!
Is NPS still relevant?
NPS is and will always remain relevant to companies who truly want to improve their customer experience. Measuring is the first step for managing and without NPS, you can’t tell how successful your growth strategies are.
Which companies have the best NPS?
Apple, Tesla, Google and Netflix are few of the renowned companies who have the best NPS in their respective industries.