nps

Net Promoter Score: The Magic Number

By Dr Sanjit Kumar Dash, Asst.Professor of WSB

A client loyalty metric created by Frederick R. Reichheld of Bain and Company and Satmetrix is known as Net Promoter Score (NPS). Reichheld has written about NPS in his article “One Number You Need to Grow” published by Harvard Business Review in 2003. Brand Loyalty and Customer Satisfaction can be assessed using NPS. Clients are surveyed and asked to rate on an eleven-point scale how likely they are to recommend the organization or brand to a another user. NPS is an administration apparatus that can be utilized to check the loyalty of a company’s clients. It helps as an additional instrument to study consumer loyalty. Net advertiser is a proportion of how much current clients will recommend an item, administration, or organization to other people. A third of Fortune 1000 organizations are utilizing NPS metric. Organizations that utilise Net Promoter Score include Apple, American Express and GE.

Clients are classified into three groups based on their reaction to this single inquiry.

These are:

■ Customers who are willing to recommend the company to others (rating of 9 or 10) are considered to be Promoters.

■ Customers who are satisfied but unenthusiastic customers (ratings of 7 or 8) are considered to be Passives.

■ Customers who are not willing to recommend the company to others (ratings of 0 to 6) are considered as Detractors.

The Net Promoter Score (NPS) is estimated by subtracting the percentage of detractors from the percentage of promoters.Net Promoter Score (I) = Percentage of Promoters (%) – Percentage of Detractors (%).The Net Promoter Score ranges from -100 to +100. NPS is -100 if all the customers are detractors and +100 if all the customers are promoters.  If Net Promoter Score is positive than it is considered to be good and if it is +50, than it is excellent.

For example if a company’s customers reports says  that there were 40% promoters, 50% passives, and 10% detractors, then the  company have a Net Promoter Score of 40–10 =30.

Companies have developed different methods for estimating the attitudes and behaviour of their customers over the years. None of these methods is perfect. All Companies simply attempting to collect data that a company can use to improve its products and processes. We believe that the Net Promoter Score is a very practical and useful method. It has advantages like adaptability, ease of use, simplicity and quick follow up.

Net Promoter Score has pulled in a  debate from scholarly and statistical surveying circles. The characterizing highlight of NPS is that it is built from reactions to an inquiry regarding readiness to suggest and the net measure found by subtracting the division reluctant to prescribe (Detractors) from the part eager to prescribe (Promoters) and forgetting those in the middle (Passives).

The same Net Promoter Score can indicate different business situations. For example, a Net Promoter Score of zero can indicate highly diverged customers, 50% promoters, 50% detractors, or a totally uncertain customer base, 100% passives. Ascertaining the Net Promoter Score might be an imaginative method for beginning a talk about client recognitions about the brand.

Directors must drill down to obtain information to comprehend the exact circumstance their business faces, as NPS is a composite of current clients’ reactions.

Net Promoter Score in specific situations can generate results that could deceive a manager who is not being cautious. For example, consider a company whose current customers are 40% promoters, 40% detractors, and 20% passives. The NPS is 40%-40%=0 for this company.

Suppose a new competitor snips half (50%) of the company’s detractors. As these detractors immediately becomes the customer to the new competitor, they cease to be customers of the existing company. Thus the NPS has to be again measured in the following way.

Promoters are now 40% / (100% – 20% = 80%) = 50.00 % of the customers that remain. Passives are now 20% / (100% – 20% = 80%) = 25.00% of the customers that remain.

Detractors are now only (40% – 20% = 20%) / (100% – 20% = 80%) = 25.00% of the customers that remain.

The NPS is now 50.00% – 25.00% = + 25.

The defection of the most vulnerable and unhappy customers led directly to an increase in NPS. Managers should make sure that they fully understand what has happened. A high Net Promoter Score is generally necessary. The easiest way to have a high Net Promoter Score is to offer a product free to customers. Then will they be happy to recommend the brand or company?

There may be a strategic reason for situations like this to be acceptable to the company in the short or medium term but this won’t be viable in the long run.

Keiningham, Cooil, Andreassen and Aksoy are of the view that the Net Promoter Score is the best indicator of organization development. It’s guaranteed by Hayes (2008) that there was no logical proof that the “probability to recommend” question is a superior indicator of business development than other client faithfulness questions. In particular, It was expressed by Hayes, that the “probability to recommend” question does not quantify the response as other traditional dependability related inquiries. The measurements examined in this study perform well in anticipating current organization execution. It is found that out of four scales tried by Daniel Schneider, Matt Berent, et al., the 11-point scale pushed by Reichheld had the most minimal prescient legitimacy. A solitary question is considerably more unpredictable and less solid than a composite file. Just recommendation won’t be adequate to anticipate the clients’ future dependability conduct. Utilization of various pointers rather than a solitary indicator display performs better in anticipating client proposals and maintenance.”

High Net Promoter Score signifies that a company is doing a decent job of securing their customers’ loyalty. If the Net Promoter Scores is low or negative, than it’s a warning signals for the firm. It provides a stable measure which companies use to motivate employees and monitor progress as the metric is simple and easy to understand. Despite the fact that the Net Promoter Score has got much consideration and a good reception, it is under discussion within scholastic and statistical surveying circles. But no other method has as many advantages as the Net Promoter Score has.  Consultant Timothy Keiningham and his co-authors claim the advantages of the measure have been overstated relative to other measures of loyalty and satisfaction. However Net Promoter Score as a metrics is a must for marketers at least to get a feel what customers think about the company or the brand.