What are the benefits of Net Promoter in comparison to
other customer measurements?
Print E-mail Share Over the years, companies have developed many different methods for gauging the attitudes and behaviors of their customers. None of these methods is perfect; all are simply attempts to gather data that a company can use to improve its products and processes. We believe that Net Promoter, as both a specific metric and a full Net Promoter System is the most useful and practical method. Among its primary advantages: Simplicity. Net Promoter surveys typically require just two or three questions, keeping the burden on the customer low. Moreover, the key "likelihood to recommend" question is scored on a simple zero-to- ten scale. There are no complex indices or correlation coefficients. The Net Promoter score is a single number that can be tracked from week to week and month to month, just like net profit. As with net profit, of course, a companys Net Promoter scores can be broken down however you wishby business line, by store, by product, even by individual customer-service rep. Ease of use. A company can conduct its NPS surveys by phone, e-mail or Webwhichever generates the best response rates and the most useful data. It can compile and post scores quickly, so that people can see the results of their performance in a timely fashion. It can share up-to-the-minute verbatim comments with employees and managers. Quick follow-up. NPS practitioners typically share customer feedback very quickly after it is received. They quickly ask managers or frontline employees to contact every customer who gives an unfavorable score (a detractor), to identify the customers concerns, and to fix the problem whenever possible. Frontline managers and senior leaders use NPS data and customer comments to inform decisions about process changes, new products and other innovations. A growing body of experience. Thousands of companies in many different industries have begun to measure their Net Promoter scores over the past several years. More important, a growing number of companies have adopted the full Net Promoter System SM . Among the early adopters are corporate trailblazers such as Apple, Enterprise Rent-A-Car, and Philips. These companies have developed successful systems based on Net Promoter principles but adapted to their own business. Many practitioners share their experiences and lessons learned through mechanisms such as the NPS Loyalty Forum. Adaptability. As an open-source methodno high-priced vendors or "black box" statisticians requiredNPS can easily be put to work in a wide variety of business settings. Apple uses it in its retail stores, American Express after important servicing calls. Logitech, the computer peripherals manufacturer, uses the system to assess what customers think of every Logitech product. Charles Schwab employed Net Promoter System as it pursued a turnaround. Customer-related measurements have a long history, and each has its partisans. But we think no other method has as many advantages as the Net Promoter System.
How is Net Promoter Score related to growth? Print E-mail Share Bain & Company research has established a strong link between organic growth and a companys Net Promoter Score relative to the relevant competitors in its industry. To establish the correlation between relative NPS and growth, Bain teams identified the relevant competitors in a business and measured the Net Promoter Scores of each competitor using the same methodology and sampling approach. These relative Net Promoter Scores were then correlated with organic growth measures. In most industries, NPS explained roughly 20% to 60% of the variation in organic growth rates among competitors. On average, an industrys NPS leader outgrew its competitors by a factor greater than two times.
In other words, a companys NPS is a good indicator of its future growth. But the relationship is stronger in some industries than in others. Its strongest when: The industry includes a substantial number of players, so customers have a real choice Network effects are minimal, so customers can easily switch providers The industry is mature, with widespread adoption and use of its products or services Wherever these conditions do not hold, the relationship may be weak or inconclusive. Other factors may undermine the relationship as well, at least in the near-term. Companies with deep pockets can open loads of new stores or flood the market with promotions or discounts. Companies with partial monopolies and companies that dominate distribution channels sometimes grow despite weak Net Promoter Scores. And technological breakthroughs can create growth surges. But while loyaltyas indicated by high Net Promoter Scoresisnt the only factor determining growth, profitable organic growth cannot long be sustained without it. Theres another important caveat to the connection between high Net Promoter Scores and growth: a high score in and of itself is not the real objective. A high NPS by itself it does not guarantee success. NPS merely measures the quality of a companys relationships with its current customers, and high- quality relationships are a necessary but insufficient condition for profitable organic growth. For example, HomeBanc Mortgage Corporation, which was featured in the first edition of the book, had the highest NPS among mortgage banks at the time. But it still fell victim to the mortgage meltdown of 2007, which swept HomeBanc and many of its competitors into bankruptcy. A company must build an army of loyal customers, as HomeBanc did, but it will squander the potential they create if it cant make effective decisions about risk, pricing, innovation, cost management and everything else necessary for sustainable, profitable growth.
Measuring your Net Promoter Score Print E-mail Share Asking the ultimate question allows companies to track promoters and detractors, producing a clear measure of an organization's performance through its customers' eyes, its Net Promoter Score. Bain analysis shows that sustained value creators companies that achieve long-term profitable growthhave Net Promoter Scores (NPS) two times higher than the average company. And Net Promoter System leaders on average grow at more than twice the rate of competitors. Net Promoter System is based on the fundamental perspective that every company's customers can be divided into three categories. "Promoters" are loyal enthusiasts who keep buying from a company and urge their friends to do the same. "Passives" are satisfied but unenthusiastic customers who can be easily wooed by the competition. And "detractors" are unhappy customers trapped in a bad relationship. Customers can be categorized based on their answer to the ultimate question. The best way to gauge the efficiency of a company's growth engine is to take the percentage of customers who are promoters and subtract the percentage who are detractors. This equation is how we calculate a Net Promoter Score for a company:
More than a score The score is at the heart of a Net Promoter System, but you cant take action if you dont know why a customer is or is not "likely to recommend." You should always follow up the Ultimate Question with an open-ended question: "Why?" The answers can help transform your organization. To learn how, check out the Closed loop, Learning and Action processes of the Net Promoter System.
While easy to grasp, NPS metric represents a radical change in the way companies manage customer relationships and organize for growth. Rather than relying on notoriously ineffective customer satisfaction surveys, companies can use NPS to measure customer relationships as rigorously as they now measure profits. What's more, NPS finally enables CEOs to hold employees accountable for treating customers right. It clarifies the link between the quality of a company's customer relationships and its growth prospects. How do companies stack up on this measurement? The average firm sputters along at an NPS efficiency of only 5 percent to 10 percent. In other words, promoters barely outnumber detractors. Many firmsand some entire industrieshave negative Net Promoter Scores, which means that they are creating more detractors than promoters day in and day out. These abysmal Net Promoter Scores explain why so many companies can't deliver profitable, sustainable growth, no matter how aggressively they spend to acquire new business. Companies with the most efficient growth enginescompanies such as Amazon, Rackspace, TD Bank, Harley-Davidson, Charles Schwab, Zappos, Costco, Vanguard, and Delloperate at NPS efficiency ratings of 50 percent to 80 percent. So even they have room for improvement. In concept, it's just that simple. But obviously, a lot of hard work is needed to both ask the question in a manner that provides reliable, timely, and actionable dataand, of course, to learn how to improve your Net Promoter Score.
Three types of Net Promoter Scores Print E-mail Share Its not unusual for a company to crow about a high Net Promoter Score. You may have seen a companymaybe a competitorissue a press release touting a score as high as 75% or more. Often, the company will compare its Net Promoter Score to scores we published in The Ultimate Question 2.0. High Net Promoter Scores are certainly better than low ones. They indicate that a company has earned more promoters than detractors. But how do we interpret the scores these companies are reporting? What is a good score? How should we set goals and targets for improvement? To begin, we should make sure we look at the right sort of Net Promoter Score. Seasoned practitioners of the Net Promoter System gather feedback from their customers in three different ways:
Touchpoint. Net Promoter System practitioners ask for feedback from their own customers after selected touchpoints, experiences or episodes. For example, they might do so after the purchase of a product or an interaction over the phone. This type of feedback focuses on understanding how customers experiences at those touchpoints influenced their overall loyalty so you can figure out ways to improve those experiences. Relationship. Net Promoter System companies regularly contact a sample of their own customers, asking them how likely they would be to recommend the company to friends or colleagues, and why. Feedback like this provides an overall assessment of the relationship between company and customer. It provides input to account teams, relationship managers and others so they can make decisions and take actions to improve selling, servicing, product design, pricing or other policies, based on what they learn. Competitive benchmark. Finally, leading practitioners of the Net Promoter System sample all target customers for their products or services. They seek feedback not only from their own customers but also from their competitors customers. Competitive benchmark Net Promoter Scores provide an objective and fair basis for comparing your companys feedback to the feedback your competitors earn. Done right, they can provide the basis for goal setting and prioritization at the highest levels of a company. The competitive benchmark Net Promoter Score is often overlooked or undervalued. Yet it adds an important level of information the other two are likely to miss. It allows a company to learn what respondents think about an entire value proposition, not just their relationship with one particular company. Touchpoint and relationship Net Promoter Scores fuel continuous improvement. Competitive benchmark scores inform a different set of decisions. They tell a company how it is doing, not just against direct competitors but against every competing alternative in the marketplace. That knowledge helps leaders know where the major threats and opportunities lie. It helps them determine strategic priorities, such as where and how aggressively to invest. The feedback can also provide valuable specifics. For example, you may find that competitor X has suddenly become popular with customers because of a new product or pricing system. Then you can ask whether it makes sense to try emulating or leapfrogging the innovation. Methodology Competitive benchmark surveys are a form of traditional market research. Researchers, usually from a third-party firm, ask respondents which companies in a given category they patronize. They ask how likely the respondents would be to recommend each one, and they probe for the reasons. In most cases, they gather data about the respondents purchases so they can estimate their economic value as customers. They also ask demographic or psychographic questions to locate the respondent in a particular customer segment. The methodology is almost always double-blind: the respondents dont know which company is asking the questions, and the customers remain anonymous to the company. As with most market research, the surveys can take 15 or 20 minutes and are designed to provide true comparisons between a company and its competitors. A higher score than the competition, even if it seems low in absolute terms, is a reliable indicator of future growth. The opposite is true as well. Competitive benchmarking eliminates the responder bias thats likely to crop up when you survey only your own customers. In your own surveys, people who dont like doing business with you may decide that it isn't worth their time to participate. With a third party doing the asking, youre equally likely to hear from everyone on the love-you/hate-you spectrum. Competitive benchmarking also eliminates the built-in difficulty of comparing absolute Net Promoter Scores from one geographical region with another. Say your operations in Asia score lower on the Net Promoter zero-to-10 scale than your other operations. A third-party survey will help you establish your performance relative to other companies operating in the same market, eliminating the worry about whether Asian customers are less likely to hand out 9s and 10s than customers in other regions. When you look at your performance relative to competitors in the same market, cultural bias becomes irrelevant