05 May 2015 Category: Blog
The Net Promoter Score (NPS) aims to not only tell you how favourably your company/product is viewed, but also predict the future success of your company. According to NPS’ followers, companies that manage long-term, profitable growth have NPS scores twice that of your average company. This metric has been hailed by some as a veritable crystal ball of business futures. But before you start hammering Google’s doors down to find your very own magical NPS figure, hold your horses; let’s take a look at the pros and cons.
Tim Newman, Telemarketing Specialist
The Telemarketing Company
First up, here’s a brief summary of the bare bones of NPS if you’ve not yet had dealings with it. In a nut shell NPS asks a single question to your customers – “How likely are you to recommend a product to a friend or colleague”. The way this question is answered splits your customers into three groups like so:
- Promoters - loyal enthusiasts who keep buying your wares and urge their friends to do the same.
- Passives - satisfied but unenthusiastic customers who could be easily tempted away by your competition.
- Detractors - unhappy customers trapped in a bad relationship with you.
The NPS works out the percentage of these three groups using a basic bit of maths and crash, bang, wallop you have an NPS number. According to experts in the field, the resulting NPS number correlates reliably with the future success of your company.
Measuring your customer’s loyalty, rather than their general satisfaction, is a relatively recent shift, and probably for the best. After all, if a customer is happy but doesn’t keep coming back, your business is going to struggle. Loyalty is the lifeblood of any company of any size. But how much insight can a single NPS figure give?
Here are 6 pros and cons to consider if you are thinking of rolling out the NPS blanket.
CON: Customer Satisfaction Versus Loyalty
At first glance customer satisfaction and customer loyalty look like they should be pretty much the same thing; or at least highly correlated. And you’d be right, in part.
One study carried out in the Auto Industry, for instance, showed a 90% satisfaction rate and yet, on average, only 40% of customers repurchased the same brand of car. Bear in mind this study is quoted by Fred Reichheld, the creator of NPS.
It certainly is true that satisfaction and loyalty aren’t the exact same thing and measuring just one of these parameters, as in NPS, means you’re missing valuable information.
One question simply can’t be enough.
PRO: Simplicity Is Key
NPS is the opposite of complex. You ask one question, you get one answer and then you do a simple calculation. Because only one answer per customer is required to generate your NPS it can be asked via any means that are convenient for you: mail-outs, through your website, in an e-mail shot or during a telemarketing campaign.
For instance, Apple uses it in its retail stores, American Express after important servicing calls and Logitech uses NPS to assess what customers think of its products. This simplicity allows you to cover large sections of your client base without spending too much time or money and without bothering your clients with extensive and time consuming questionnaires.
Also, statisticians are expensive. Anyone with a basic grasp of Excel can easily generate their NPS from the responses they gather in a matter of minutes.
CON: People Are Bad At Predicting Their Future Actions
Humans, as wonderfully convoluted as our brains are (or maybe because they’re so convoluted), find it very difficult to know how we feel or more importantly, how we will feel in the next few minutes, hours, days and months.
Don’t worry, I’m not going to embark on a misanthropic rant, but humans, as a whole, are quite bad at predicting what they’ll do in the future.
So, if you ask a customer whether they’d recommend you to a friend or colleague they might say “yes, certainly” then immediately forget about the transaction and never mention your company’s name again. At the other end of the spectrum they might say “no way José” then later realise the value of your offering, run out into the streets and start distributing your leaflets to all and sundry.
The problem with any questionnaire is that a human is filling it in. I discussed similar issues when I wrote about the shortcomings of DISC personality tests; us fallible shaven apes can not be relied upon to give reliable information about our reliability.
PRO: High-Level Snap-Shot
Thanks to the ease in which NPS can be generated, it makes a really useful tool for feeding back information to high-level managers or relevant stakeholders. NPS is used throughout a myriad of business models and has quickly become an industry standard. Used by the likes of Apple, Enterprise Rent-A-Car, and Philips, NPS has friends in high places.
Because of NPS’ ubiquity, virtually any manager in any sector will have a grasp of what it means, and if they haven’t heard of it, NPS is simple enough to be explained in a few sentences.
CON: What Do We Do Next?
If you decide to run with NPS, one issue you’ll face is as follows: “Why is our score so low?” One problem with NPS in general is that it gives you a score but nothing else. So in a way, it sort of doesn’t matter how reliable the score is, if it doesn’t tell you what you’re doing wrong or how to fix it, there’s little point in knowing it in the first place.
Because NPS is so well regarded in business circles, if you do have a good NPS it’s worth shouting about. Print it on your pamphlets, brochures, T-shirts, at the top of the front page of your website and, of course, mugs, badges and mouse-mats. It’s something to show off about.
If Apple and their ilk are using it, you’re in good company and people are obviously taking it seriously.