Does NPS really contribute to company revenue growth? - TELUS International Europe

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  • Does NPS really contribute to company revenue growth?

    July 20, 2016

    NPSToday, companies do business in highly competitive environments. Attempts to appeal to consumers based on price are increasingly less effective because of the ongoing price war. And relying on a competitive advantage based on product differentiation is not enough with so many businesses offering similar items or services.

    But while it’s increasingly difficult to gain an edge with price or product, it’s now possible to win market share by focusing on improving the customer relationship through a high Net Promoter Score (NPS).

    What is NPS?

    NPS first appeared in the famous 2003 Harvard Business Review article titled “One number you need to grow” by Fred Reichheld. Ever since, NPS has been adopted by thousands of companies.

    NPS is a managerial tool used to gauge the loyalty of a customer in relation to a supplier – such as a company, product, or employer – through their inclination to recommend. It indicates whether a customer contributes, or not, towards the promotion of your brand, service or product. In practice, the question is a simple one: “would you recommend us to someone you know?” The customer responds by giving a score from 0 to 10. Zero corresponds to “I would absolutely not recommend you” and 10 to “I would definitely recommend you.”

    The promoters (i.e. those giving scores of 9 or 10) are key influencers. They allow a company to quickly win market share by word of mouth. Fairly satisfied customers (scores of 7 or 8) are volatile buyers who are not overly enthusiastic about their purchasing decision. At any time, they can slip into the category of promoters or detractors. Detractors (score of 0 to 6) are likely to turn to the competition. What is more, they are likely to hurt the company image by spreading negative word of mouth.

    In light of these challenges, customer relationship managers are becoming increasingly interested in NPS. Global leaders such as Apple, Facebook and American Express have been using NPS for quite some time now. But has NPS really proven that it drives revenue increases in companies that use it?

    Is the return on investment of NPS quantifiable?

    The answer is yes. A study published by the prestigious London School of Economics entitled “Advocacy Drives Growth”, proves that an average NPS increase of 7% correlates on average with a 1% growth in revenue.

    A perfect example is Apple. At one time or another, many of us have debated between Mac and PC. Often the discussion goes beyond simple differences in product features of the two American brands; the result of a strategy in which NPS plays a leading role.

    In the early 2000’s, Apple was selling niche products through a handful of its own retail stores. The retail guru, Ron Johnson, who was in charge of growing the customer base, decided to transform the sales outlets, turning them into temples dedicated to customer satisfaction.

    NPS has been playing a key role at Apple ever since. Each new employee is given three weeks of initial training, including one specifically dedicated to NPS. Evaluations of NPS are made regularly and the stores are in constant competition. The scores of different Apple store locations are compared regularly to stimulate performance and encourage the highest score possible.

    From 2007, when Apple started measuring NPS, to 2011, the score has grown from 58% to 72%. And as with other companies, implementing NPS has represented a real commitment to making the company stand out from the competition by offering exceptional customer service that turns consumers into promoters. As a result of their investment, Apple generates $6,000 in business per square meter of store, while the competition averages only $1,200.

    In his latest book, “The Ultimate Question 2.0”, Fred Reichheld states that the ROI of NPS is undeniable, and not just for large companies like Apple, but for many small and medium enterprises as well. Reichheld and his team found that companies that have adopted NPS grow twice as fast as their competitors. Additionally, among the 9% of companies that have the most sustainable and most profitable growth, NPS scores are on average 2.3 times higher than scores from other companies in the same sector.

    As an example, Philips Electronics conducted a study of NPS using a representative client sample. Their results indicated that customers with rising NPS had a 69% increase in revenue. Customers with steady NPS, only had revenue growth of 6%. And for those with declining NPS, revenues fell by 24% on average.

    The facts seem to support the idea that high NPS levels contribute directly to the growth of company revenues. By focusing on NPS, a company’s objective is stripped down to its essentials – to do everything within its power to make customers as happy as possible – with the supreme goal of turning them into potential promoters. Companies with high NPS enjoy the best sales force they could ever dream of; highly satisfied customers who want the world to know how great your product or service is.

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