Ipsos Encyclopedia - Net Promoter Score (NPS)

Definition: NPS originally stood for Net Promoter Score, but now means Net Promoter System. Net Promoter Scores are calculated using the answer to a single question, using a 0-10 scale: "How likely is it that you would recommend [brand] to a friend or colleague?" This is known the Net Promoter Score question or the recommend question.

Ipsos Encyclopedia - Net Promoter Score (NPS)

Respondents are grouped as follows:

  • Promoters (score 9-10)
  • Passives (score 7-8)
  • Detractors (score 0-6)

Subtracting the percentage of Detractors from the percentage of Promoters yields the Net Promoter Score, which can range from a low of -100 (if every customer is a Detractor) to a high of 100 (if every customer is a Promoter).

Yet by itself the net promoter score is just a simple metric. The Net Promoter System is a more complete business tool which encompasses features like:

  • NPS diagnostics: understanding why people are promoters or detractors
  • Closed loop: immediately sharing customer feedback with employees, and responding directly to individual customers to take action on their concerns (and delights)
  • Action: ensuring companies use NPS to actively seek ways to change day-to-day behaviour throughout the organisation
  • Loyalty economics: understanding the costs and benefits of investing in different segments of the customer base
  • Communication and embedment: ensuring NPS companies from the board room to front-line staff are committed to improving the experiences they deliver

Ipsos Point Of View

NPS: the success story

Ever since the original HBR article by Frederick F. Reichheld 'The One Number You Need To Grow', CEOs, CMOs and Customer Experience officers have latched onto NPS. And without doubt, the single greatest strength of NPS is that it has brought the Voice of the Customer into the board room. It has galvanised entire companies around improving the experiences they deliver. As such, NPS has done more than any other metric to elevate the importance of customer feedback within organisations.

But is it the best metric?

From an academic perspective, every metric has pros and cons:

  • There have been a number of studies to show that NPS doesn't link as well to financial success as other metrics (and of course, many that show that it does!)
  • Some would argue that a composite measure incorporating more than one variable (e.g. an average of recommend, satisfaction and likelihood to continue) will always be better than a single measure
  • Another good argument is that 'satisfaction' is more directly associated with specific experiences than recommendation (which incorporates other factors such as brand associations). As such 'satisfaction' is more within the control of people who deliver those experiences and therefore a better measure for targets and incentives

However from a practical perspective, the success story described above overrides any academic debate. One should never try to move a client away from a successfully embedded NPS program; the benefits are clear and outweigh any academic arguments.

NPS pros and cons
Some of the many pros and cons for NPS are listed below.


Pros:

  • Simple, easy to understand
    • No complex indices or black box calculations
    • Easy to calculate and track                           
  • Organisations can rally around it
    • Board level  executives accept NPS
    • A common and unifying language/simple to explain to front-line employees
    • Easily broken down by business unit, product, customer segment and so on
    • Encourages healthy inter-departmental competition
  • Easy to deploy
    • One question
    • Scores can be quickly compiled and posted
    • 'Off the shelf' approach
  • Can be turned into a System
    • Training, communications and action planning
    • Analytics for diagnostics & root cause analysis
    • Closing the loop

Cons:

  • Not a silver bullet
    • Measuring NPS alone is not going to lead to improvement
    • One metric is not always enough to measure and manage complex relationships
    • Not a proven leading indicator of growth
  • Can be volatile
    • A net score is inherently less stable than a single proportion or a mean
    • Significance testing is possible but more complicated
  • Can be subject to cultural bias
    • The cut-off points for the NPS categories (e.g. "10/9 = Promoter") do not equally apply to all countries in same way
    • Some countries culturally score lower than others

NPS is used primarily in the Service industries and has far less traction for packaged goods.

Moving the needle

Getting a KPI in place that represents overall customer sentiment is in fact the easier part of the overall process. Understanding what to do to improve that score requires a little more thoughtful analysis. That's probably why NPS has moved from 'Score' to 'System'!

Diagnostics frequently come in the form of attribute ratings put through a statistical Key Driver Analysis. One of the critical success factors here is ensuring the attribute list is right – and this is often a balancing act:

  • Covering all the different experience elements that can impact overall opinion
  • Having attributes that are detailed enough to be ‘actionable’

 

versus

  • Not asking people to endure long, boring attribute lists that they may see as irrelevant, as this will lead to poor quality feedback

 

Customer Journey Mapping studies provide valuable insights that help get this balance right.

It should be noted that one cannot  perform a driver analysis directly on the NPS metric as it is an aggregate score.  To conduct a driver analysis one has to use either the 'Recommend' scale or the NPS categories as the dependent variable.

However, with recent advances in Text Analytics capabilities, there is a tendency to rely less on attributes and more on verbatims from open-ended questions. Like all approaches, this has both advantages and disadvantages and the best solution is probably some kind of balance (e.g. shorter attribute lists and some customer verbatims).

Competitive context

Clients often ask the question "Is my NPS a good score?"

NPS is a 'single brand' metric, just like 'satisfaction' or 'likelihood to continue.' That means these KPIs represent opinions of one brand. Of course we can have a NPS for three brands – but only by having three metrics.

Many companies benchmark themselves by comparing KPIs at an aggregate level: "How does my NPS compare with competitors?" But decisions aren't made at an aggregate level – they are made at an individual level. To better understand people's decision making process (and therefore their behaviour) we need to understand competitive context at an individual level.

In situations where people tend to have relationships with more than one brand at a time (e.g. supermarkets), about 50% of a brand’s promoters are also promoters of a competitor brand:

  • 9/10 is only good if it is better than the competitors
  • Rank matters – at an individual level

 

Making NPS better

A successfully embedded NPS program that focuses an organisation on the experiences they deliver is a significant achievement and should not be undermined.

However, by overlaying 'Rank' we can get a better understanding of each of the NPS categories 

Explaining Rank:

  • ‘Best:’ client brand rated higher than competitors (at an individual level)
  • ‘Par:’ client brand rated =1st with at least one competitor
  • ‘Worse:’ a competitor is given a higher rating than the client brand

 

In one study, we found that c. 50% of 'Passives' rated a competitor brand higher. Understanding which half were truly passive and which were 'vulnerably' passive provided an additional layer of understanding to our analysis. Moreover in the same study only 20% of 'Promoters' rated the client brand as 'Best' – better than all the competitors.

Evaluating competitive context at an individual level enables us to gain a deeper understanding of NPS categories and significantly increase the value of NPS programs.

In Summary

  • NPS has achieved what no other customer metric before it managed to do; it has brought the Voice of the Customer into the board room and focused entire organisations on improving the experiences they deliver
  • Academic arguments as to whether NPS really is the best metric are outweighed by the practical success it has delivered
  • Knowing where to invest on CX (Customer Experience) improvements is the hard part – this is where more thoughtful analysis is needed
  • Like any 'single-brand' metric, NPS does not gauge competitive context at an individual level. However 'Rank' can be overlaid to provide a deeper and more valuable understanding

Ipsos is a leading global provider of NPS programs. We have successfully implemented and added value to many hundreds of global and local NPS studies. 

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