Net promoter score
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A net promoter score (NPS) is the result of a customer satisfaction survey in which customers are asked only one so-called "Ultimate" question: How likely are you to recommend Company or Product X to a friend or colleague? The NPS concept was developed by loyalty business model expert Fred Reichheld of Bain & Company and is discussed in his book The Ultimate Question: Driving Good Profits and True Growth. The concept is based on Reichheld's research into the link between customer satisfaction, customer loyalty and profitability.
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[edit] NPS calculation and interpretation
Responses to the "ultimate question" above are solicited on a 0 - 10 scale, with 0 meaning the least likely to recommend and 10 meaning the most likely to recommend. The 0 - 10 scale is required for proper NPS calculation. Responses are then coded as follows:
- Customers rating 9-10 are called promoters.
- Customers rating 7-8 are called neutral.
- Customer rating 0-6 are called detractors.
The difference between the percentage of a company's promoters and detractors is the Net Promoter(r) Score (NPS). For example, if 50% of a company's customers respond with a 9 or 10, and 30% respond 0 - 6, the company's NPS would be 20%. The Net Promoter metric was co-developed by Fred Reichheld, a well-known loyalty expert and Bain Fellow, and Dr. Laura Brooks of Satmetrix Systems.
A customer's response to the "recommend" question typically serves as a strong indicator of that individual's economic value to the company. For example, according to Reichheld's research, customers with higher scores typically buy more, remain customers for longer, and refer others than do those with lower scores. Aggregated across an entire customer set, the Net Promoter score is expected to signify a company's growth potential based on the strength of its customer relationships. It can also help management make the right decisions to facilitate such growth. NPS methodology is credited with the ability to both identify and create fast growth companies and help build market share by moving managerial focus away from short-term profits and toward long-term value in positive customer relationships. NPS reports can therefore be used as an additional managerial tool to accompany a firm's financial statements.
[edit] NPS measurement process
NPS Surveys are performed periodically, or even routinely, on a population of customers for a particular product group or company. NPS measurement is usually conducted by customer experience management companies, professional opinion survey or market research firms rather than the company itself in order to avoid statistical bias and to facilitate standardized results. Internal NPS surveys are occasionally used to save money or for comparative studies where the methodology is well-trusted.
The raw NPS scores are not directly comparable between companies and product lines due to differences among customer segments, companies, and industries. They are instead used as an indication of trends within one company or product group when employed with a standard methodology on a similar customer base. They may also serve as an imperfect indicator for indirect comparison between different companies and products. Similarly, cultural differences among those in different countries make geographical comparisons of Net Promoter Scores (even among divisions of the same company) difficult.
Measurement of Net Promoter scores may serve as one element of a larger, integrated customer loyalty program or strategy.
[edit] Industry examples
Research by Fred Reichheld claims a positive correlation between NPS and growth of the company. [1]. General Electric (GE), for example, in 2005 reported billions of dollars in revenue from increased market share due the implementation of NPS, and has reported passing on their NPS expertise to GE customers to help them improve market share as well. In 2006, for example, GE reported sharing the NPS methodology with 100 car dealers that use 11 of its products. After using the NPS system, the car dealers' market shares rose, also increasing GE's sales to them.[citation needed]
GE plans to use NPS as a metric to decide the compensation of its leaders.[2]
[edit] References
- Reichheld, Fred. The Ultimate Question: Driving Good Profits and True Growth, Harvard Business School Press, 2006.
- Reichheld, Fred. "The One Number You Need to Grow”, Harvard Business Review, December 2003
- NET PROMOTER is a trademark of F. Reichheld, Satmetrix Systems, and Bain & Co.
[edit] See also
[edit] External links
- Fred Reichheld's The Ultimate Question Web site
- Net Promoter community site, co-founded by Reichheld
- NPS on GE's website
- Industry Week covers GE's efforts to implement NPS (Link accessed on 6 July, 2006)
