Friday, September 22, 2017

Net Promoter Score (NPS)

Net Promoter 1 is a popular technique for measuring customer loyalty. It was developed by Fred Reichheld who works for Bain and Company. The main premise of this technique is that a single question provides an accurate measurement not just for customer loyalty, but corporate success. This technique is explained in detail in Mr. Reichheld's books entitled "The Ultimate Question" and the updated version entitled The Ultimate Question 2.0.

Fred Reichheld's The Ultimate Question 2.0In this technique, customers are asked a single question on a 0 to 10 rating scale - "How likely is it that you would recommend our company to a friend or colleague?" Based on their response, they are coded as Promoters (9-10 rating), Passives (7-8 rating) or Detractors (0-6 rating). The NPS Score is simply the percentage of Promoters minus the percentage of Detractors. Any score over 50% is quite good while 75% or above is exceptionally good. Low (or negative) scores are indicative of companies that have serious issues regarding customer loyalty. Research by Bain has shown a correlation between NPS and revenues growth, the higher a company's NPS score the higher the revenues growth.

Since all of the analysis is based on a single question (and perhaps a follow-up question), NPS surveys tend to be short and simple. They are cost-effective studies that provide results that are easy to explain and communicate throughout the organization. There is an active debate within the market research community regarding NPS. While many researchers are proponents of this technique, other market researchers claim that other questions work just as well as the likelihood to recommend. There is an inherent lack of precision that comes from basing all analysis on a single question, which may be exacerbated by collapsing the results into three categories. Despite these issues, in our opinion Net Promoter is one of several valuable techniques that can help companies better understand their customers.

If you are interested in learning more about the Net Promoter technique, or to request a quote on a project, contact us.

(1) Net Promoter is a registered trademark of Fred Reichheld, Bain & Company. Those wishing to learn more about Net Promoter may wish to read Fred Reichheld's updated book which may be purchased at Amazon at The Ultimate Question 2.0.

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Net Promoter Score
Page Last Updated: 06/19/2014