The Net Promoter Score (NPS), first published in 2003 by Harvard Business Review, is a metric used to evaluate customer loyalty and satisfaction with a company or product. NPS asks customers just a simple question: "How likely are you to recommend the company/product to a friend or colleague?"
Responses are categorized on a scale from 0 to 10, with customers divided into three categories: Promoters (9-10), Passives (7-8), and Detractors (0-6).
Promoters: These are loyal and enthusiastic customers who are likely to act as advocates.
Passives: These are customers who are merely satisfied, without necessarily exhibiting high levels of loyalty.
Detractors: These are dissatisfied/disappointed customers of a company, unlikely to choose it again, and likely to spread negative word-of-mouth.
How is it calculated?
Calculating the Net Promoter Score is simple enough. The company simply subtracts the percentage of detractors from the percentage of promoters (passives are not taken into account). For example, if the percentage of promoters is 65% (e.g., 130 out of 200 surveyed) and detractors are 10% (e.g., 20 out of 200), then the NPS is 55.
The NPS can range from -100 (if all customers are detractors) to 100 (if all are promoters). Generally, a score above 30 is considered good, although competitive benchmarks should also be taken into consideration.
Advantages of NPS:
Simplicity: This is undoubtedly the primary advantage of the method. The NPS question is simple and easy for customers to answer, making it easy to implement.
Comparability: Because NPS uses a standardized scale, it's easy to compare results across different time periods or among different segments of the company.
Disadvantages of NPS:
Oversimplification: The one-dimensional nature of the NPS question doesn't take into account the complexity of relationships between companies and customers.
Limited Insight: It doesn't provide detailed analysis of the "why," so supplementary research may be needed for a full understanding (hence the recommendation for an open-ended question).
In any case, data derived from such a survey should be utilized, which is something many businesses overlook. For example, in the case of a detractor, such as a hotel guest who rates their stay a 5 when asked, action should be taken to identify the source of the problem and mitigate their dissatisfaction.
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