What you need to know about NPS and does it really help to generate growth?
October 28, 2015
By Victor Claire
To answer the question, customers assign a score from 0 to 10. A zero score corresponds to the comment “I will never recommend you” and 10 equals “I’ll certainly recommend you.”
Developed almost ten years ago by Fred Reichheld, partner at Bain & Company, NPS has been adopted by thousands of companies.
The promoters, passives and detractors
In the context of NPS, promoters – those giving a 9 or a 10 – are true brand supporters. They help the brand, through word-of-mouth, to win market share quickly.
The pretty satisfied customers, or passives (score either 7 or 8), are volatile buyers who show no real enthusiasm for purchase. They are, therefore, more inclined to switch at any time, to the category of promoters or detractors.
Detractors (score 0 to 6) are customers that are harmful for the brand. They are likely to abandon it and turn to the competition. Detractors are also likely to degrade the image of the company, by spreading negative word of mouth through social networks.
In a fierce competition, what can make a difference?
Today, many companies in Western Europe and North America operate in extremely competitive environments, where attempts for differentiation on price is limited. Differentiation on products is also hard because apart from some exceptions, companies sell more or less identical products and services.
While it is increasingly difficult to compete on products and prices it is possible to win market shares by improving customer service. Here’s where NPS comes into action.
Thousands of companies have already implemented NPS successfully, including leading companies in their respective sectors, such as Apple, Facebook and American Express. Yet, did NPS prove it can really help to increase the revenue of companies that adopted it?
What is the ROI of NPS?
In the report “Advocacy Drives Growth” by the prestigious London School of Economics, researchers showed that an increase of NPS by 7 points results in 1% increase in revenue.
We’ve all witnessed debates between fervent Mac supporters and PC-users. This is very common and it is not simply about the features that distinguish the products. It is rather the result of a strategy in which NPS plays a major role.
Let’s have a quick flashback. In the early 2000s, Apple was selling niche products and was gently entering the market by opening its own stores. Ron Johnson who was in charge of Apple retail strategy decided to transform the stores into “temples” dedicated to customer satisfaction. He implemented NPS as soon as it was developed.
At Apple, NPS occupies a major role ever since. Each new employee gets an initial 3-week training which includes a unit dedicated to NPS. NPS assessments are frequent at Apple stores. Their scores are regularly compared in order to boost performance and reach the highest scores possible.
At Apple, NPS has increased by 12 points since 2007, from 58% to 70%. Like in many other companies, NPS implementation at Apple is the result of a strong desire to go beyond the competitors by offering a customer service which turns consumers into promoters. The ROI at Apple is well known: Apple has $6,000 turnover per square foot in its stores whereas for their competition it is on average $1,200.
How is Net Promoter Score related to growth?
Facts show that high NPS levels contribute to increase in companies’ turnover. In his last book, “The Ultimate Question 2.0”, Fred Reichheld asserts that the ROI of NPS is undeniable not only for big companies like Apple but also for many SMEs. Here are some results of Reichheld’s research:
• Companies that adopted NPS have a growth rate twice as high as their competitors
• For 9% of the companies that register the most sustainable and most profitable growth, NPS scores are on average 2.3 times higher than those for other companies in the same sector
For example, Philips Electronics studied NPS on a representative sample of clients and discovered that the customers among which NPS increased, revenue was up 69%. For customers whose NPS is constant, it increased by only 6%. And in case of decline of NPS, revenues fell by 24% on average.
The supreme goal is to turn customers into potential promoters. With high NPS levels, companies have on their side the best sales force possible: extremely satisfied customers who do not miss an occasion to tell it.
Over the past couple of years, we’ve noticed a number of experts in start-ups, innovation and venture capital discussing the potential benefits of outsourcing customer service and other non-core business functions.