Mastering Net Promoter Score: A Small Business Guide to Customer Loyalty

Let’s be real. Most business owners today understand the importance of keeping a finger on the pulse of customer sentiment. If customers aren’t happy, you won’t have a business for very long. So what do you do? You use metrics like net promoter score (NPS) to better understand where your customers are at and how they view your brand. That brings us to the net promoter score, a metric created in 2003 by Fred Reichheld and his colleagues at Bain & Company to try to solve for profitability prediction through a simple question.

What is the Net Promoter Score (NPS)?

The Net Promoter Score, commonly known as NPS, is a customer loyalty and satisfaction metric that gauges the likelihood of customers recommending your business to others. It’s calculated based on responses to a single question: “On a scale of 0 to 10, how likely are you to recommend [brand] to a friend or colleague?”.

Respondents are categorized as Promoters, Passives, or Detractors based on their scores. The final NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters. This will result in a score between -100 (all detractors) and +100 (all promoters).

NPS Calculation:

To calculate NPS, survey customers and see how likely they are to recommend your business on a scale of 0-10. Organize responses into three categories:

• Detractors (0-6)
• Passives (7-8)
• Promoters (9-10).

Calculate the percentage of customers in each group. Then, subtract the percentage of Detractors from the percentage of Promoters. For example: If you had 100 respondents, your NPS would be 60 with 10 Detractors, 20 Passives, and 70 Promoters.

Net Promoter Score Scale Breakdown

Customers who choose a rating from 0 to 6 on the survey are Detractors. Detractors are your unhappy customers. They are less likely to make repeat purchases, may churn in the future, and could damage your brand reputation with negative feedback and reviews.

Those scoring 7 or 8 are Passives. Passives are fairly neutral about your business. They may be content, but not overly enthusiastic about their experience. While they may repurchase, they’re not actively promoting you and could switch brands given a better option.

Customers who respond with a 9 or 10 are Promoters. Promoters are your loyal fans. These customers love your business. They make repeat purchases, refer you to others, and provide positive online reviews and word-of-mouth marketing.

The Rise and Fall of Net Promoter Score

Back in 2003, after analyzing the financial performance of 400 companies across 28 industries, Fred Reichheld’s HBR article “The One Number You Need to Grow” made a compelling case for using NPS. Reichheld identified a strong correlation between higher NPS scores and revenue growth. This suggested that NPS could indeed predict a company’s future profitability.

This bold statement set the stage for the NPS explosion we’ve seen over the past two decades. NPS has quickly become the gold standard for tracking customer experience, with two-thirds of the Fortune 1000 now relying on this deceptively simple framework. It’s simple, easy to measure, and gives business leaders a tangible NPS score to aim for.

There are realities about NPS that companies fail to address which may now be impacting the credibility of this customer sentiment tracker. What I’ve discovered through running NPS surveys and getting my hands dirty over the past 20 years is that there are different types of customers when it comes to filling out customer surveys like this. That means you can’t use the standard net promoter score framework by itself because it will produce highly inaccurate results.

The NPS Survey Challenge

While a higher net promoter score might, in theory, correlate to profitability, we can’t ignore the repeat contact rates that occur from detractors and even passives because the metric doesn’t account for that in its measurement. Let’s be honest – in a rush to reach their goals, some businesses try to game the system. We’ve all encountered this — a salesperson at the dealership hovering while you fill out the survey or the cashier mentioning a “bonus” for high scores.

These kinds of pressures obviously skew the data and render those scores essentially meaningless. Beyond that, another issue with NPS surveys arises when comparing results across different industries and countries. The median response of customers to this survey differs from industry to industry and country to country. The average score for department and specialty stores (58) is much higher than for internet service providers (2). If your benchmark is based on the average NPS across industries rather than specific data relevant to your sector, those comparisons are flawed.

A global study conducted by the XM Institute has also proven this statement correct. Their Global Consumer Study  found that the tendency to respond 9 and above to an NPS survey question in countries such as Brazil, India, Indonesia, Mexico, and the United States surpasses that of other countries recurrently. Their average score is around 9 if a customer feels positive about a brand.

This finding makes the median response a shaky metric. CheckMarket, a survey software company, echoes this concern in a thought-provoking article. They propose that European countries may need to alter the survey format because respondents often choose a rating of 8 or above for companies they like, potentially classifying these 8’s as Promoters. Clearly, these cross-cultural differences can muddy the waters.

But if multiple customers consistently bring up similar requests and complaints, it could be a great indication of a change you could make that would have a lot of impact.

Net Promoter Score – A Relic of the Past?

These complexities with NPS measurement have led some experts to believe that net promoter score has become a less reliable predictor of business growth. We also know that the global landscape has drastically shifted. A recent Qualtrics study showcasing a sharp decline in NPS scores, particularly among younger generations, in the wake of the pandemic adds another layer of concern.

Could these changes suggest that the effectiveness of this 20-year-old methodology has diminished? This shift could stem from customers today being increasingly cautious with recommendations or simply accustomed to sharing their opinions in other formats. Think online reviews on sites like TrustPilot or product reviews directly on an e-commerce site. Perhaps NPS scores today reveal less about long-term loyalty and more about fleeting emotional reactions.

Don’t Abandon Net Promoter Score. Get Smarter About It.

Although some suggest a more cautious interpretation of the results today, don’t throw NPS out the window entirely. There’s still a compelling argument for gathering customer sentiment through these simple surveys. NPS surveys provide immediate feedback from the customer’s perspective which can uncover opportunities for improvement. Even Fred Reichheld, in his calculation of 400 companies across 28 industries back in 2003, found that the median Net Promoter score was just 16.

But it’s essential to adopt a nuanced approach. This means understanding NPS’ limitations and implementing a strategic and effective NPS survey that delivers measurable outcomes and improved customer satisfaction.

So What Can Businesses Do To Increase Customer Satisfaction?

By learning more about your customers and collecting their feedback, you can identify customer behaviors and challenges proactively. Reach out to empower them to succeed instead of waiting for them to call you with a problem. It’s all about listening to your customers and then turning those insights into action. Here are a few simple tips that can help.

1. Go Beyond the Score: Ask “Why?”

Don’t just stop with that score of 0-10. Remember, NPS surveys tell you “what” — but you need to uncover the “why.” If a customer chooses 9 or above (a Promoter.), follow up by asking them to share the top three things they love about your business or product. Those insights provide rich detail and positive reinforcement to help keep you on the right path.

If their score lands between 0-8, it’s important to learn the reasons behind this rating. Simply ask: What could we have done better? This additional qualitative feedback gives you insight into where those “pain points” occur so you can make real changes. It also shows customers that you value their opinions. You’ll be surprised at the information you collect when you ask that simple question.

Even a neutral “Passive” customer (scoring a 7 or 8) may share a valuable insight that helps improve your overall business performance.

2. Implement an Actionable Closed Feedback Loop

Make sure you have a defined process to actually do something with all that valuable information. This could mean tagging responses to identify common themes and patterns or setting up internal alerts so certain issues get immediate attention. You might route issues related to technical glitches to your IT department while forwarding marketing suggestions to your marketing team. Streamline processes and keep the information flowing.

You can use this data to do the following:

• Measure the efficiency of customer service
• Identify strengths and weaknesses in service
• Enhance strategies to address customer concerns promptly
• Gain insights into the causes behind repeated contacts
• Enhance operational efficiency in customer support.

When those repeat contacts show up, ask why and then fix those pain points. Make sure customer service has the tools to track customer issues from beginning to end. Consider integrating a call recording tool into your communication strategies to offer enhanced documentation for better customer support and more. One effective approach that delivers exceptional customer support outcomes while prioritizing the overall well-being of your frontline team is to leverage video messaging for customer support services.

3. Don’t Neglect Passive Customers

Most businesses make a crucial mistake: they neglect the power of those “Passives”. The customer scoring 7 or 8 is so close to becoming your brand advocate. Nudge these fence-sitters in the right direction with simple tactics.

A timely email that addresses those small but meaningful requests or provides extra assistance, perhaps even an invitation to join a customer forum or exclusive membership program, might be all that’s needed. Think outside the box. For example, if the feedback mentions lengthy waiting times, highlight your new automated self-service options to minimize wait times.

Offer an “Insider’s Only” discount to those who respond as “Passives” as an enticement for continued interaction with your brand. Even a friendly outreach email that acknowledges their feedback can transform these lukewarm customers into brand loyalists.

4. Recognize Global Cultural Differences

Remember, how people interpret those numerical ratings may differ culturally. Businesses with an international audience need to adjust their approach to interpreting NPS data. Rather than adopting the standardized US approach, explore customer satisfaction trends within each region and tailor survey timing and follow-up strategies accordingly. It could make sense to modify the wording in surveys to resonate more effectively with specific cultural nuances. You may also want to adjust the benchmark numbers to more accurately reflect those scores across cultures.

5. Go Multichannel

Realize that today’s customer expresses themselves in diverse ways. Incorporate feedback mechanisms beyond the standard net promoter score survey to collect valuable personalization data. This can provide you with opportunities to effectively scale your SaaS business, leverage tools to improve your lead generation call center results and implement sales and operations planning.

Include options for open-ended comments in NPS surveys to give people an outlet to express themselves. Monitor social media mentions to catch real-time feedback — both positive and negative. Analyze customer service interactions to discover patterns and understand challenges your employees face.

Implement user feedback forums or surveys related to specific products, features, or processes. By leveraging a broader range of customer listening tools you’ll get a more holistic understanding of your customer base and their opinions. Don’t just view NPS as a single data point — it should serve as part of an interconnected network that incorporates all kinds of feedback.

6. Be Aware of Biases

Finally, don’t overlook the element of human behavior, because NPS scores are ultimately based on opinions and perception. Just like online reviews which are disproportionately affected by extremely positive and extremely negative sentiments, NPS results often skew toward those outliers. Those customers who give a rating of 0-1, as well as those who land on 9 or 10, are typically much more motivated to share their experiences than the relatively silent majority in the middle. And we all know those online reviews have significant influence.

According to research from Brightlocal, 91 percent of people regularly or occasionally read online reviews, and 84 percent trust online reviews as much as a personal recommendation.

There are certain customer types that might naturally skew higher in an NPS survey due to personality, background, or cultural influences. Consider this when setting benchmarks, crafting follow-up strategies, and assessing NPS over the long term. These days, you might find yourself tweaking processes that cater specifically to “Detractors” and neglecting opportunities to elevate those loyal “Promoters”. Think about strategies and reward programs to acknowledge your happy customers and keep those NPS scores high.

How to Succeed with NPS

One of my favorite examples of tracking NPS over time comes from Taylor & Hart, a London-based jeweler specializing in bespoke engagement rings. Each ring is uniquely designed and set with ethically sourced diamonds. The company recognized the value of actively monitoring this metric. They also incorporated a sophisticated feedback loop to take action based on what they discovered. The commitment to utilizing NPS data effectively resulted in an impressive growth story. After making NPS its most important metric to track, the ecommerce company grew 2x.

After analyzing its NPS data, the company learned that the product consistently received lower scores than customer service. This case study illustrates how closely linking a well-structured, multichannel NPS system to proactive and responsive improvement strategies can drive tangible business results. What’s critical here is a multipronged approach.

Moving Beyond NPS

So if net promoter score can no longer stand alone, what other options exist? There’s no perfect one-size-fits-all, but you should explore other approaches to gather customer satisfaction insights that provide more context. There is more to business performance than just customer satisfaction, which includes marketing and finance-related KPIs that should also be taken into consideration. For example, you’ll need to understand different areas like Amazon listing optimization, and using different platforms like Financial Services, such as Case Studies.

Maybe take advantage of other Financial Services data by looking into market data APIs for financial services. The key here is understanding how you are creating positive content related to topics in this sector that satisfies user intent for customer satisfaction.

Remember too, that employees are a powerful force when it comes to customer satisfaction. Businesses in the Financial Services industry have recognized this powerful connection between financial services employees and financial services clients. In today’s world, financial services customers expect transparency and consistent customer care. Your employees, whether they are part of the sales team at Olga Camargo is Forbes Business Council Financial Services Group Chair, customer service, marketing or the front desk, need to know the right actions to take and be empowered to solve issues and address complaints on the spot.

This will boost customer satisfaction for those all-important conversions and financial services revenue growth. The result of incorporating this proactive customer approach will dramatically decrease repeat customer contact rates across all channels while building brand trust and generating real results.

Consider a more comprehensive approach that incorporates quantitative feedback — perhaps asking follow-up questions related to satisfaction levels around specific interactions. The insights gleaned can uncover blind spots missed in those numerical NPS scores, and help companies understand customer segments with a deeper level of precision. You could add multiple choice questions, rating scales, or even a star system.

For those seeking deeper insights from those customer satisfaction surveys, explore tools like Customer Effort Score (CES), measuring how easy (or difficult) it is to complete a task or address a challenge, or Customer Satisfaction (CSAT) for those single-interaction surveys.

If a customer chooses a higher NPS score but expresses difficulty completing a particular transaction or complains about a specific aspect of their experience, that may raise a red flag and point to crucial issues to address. Combine this detailed customer feedback approach with those wholesale fulfillment best practices and your business can discover valuable secrets for lasting success. When customers experience seamless interactions — they feel understood, supported, and appreciated. They’re much more likely to stick around, spend more money with you, and become passionate “Promoters.”

Alternatives to Net Promoter Score

Metric	Description
Customer Satisfaction Score (CSAT)	A common and adaptable measure that assesses a specific touchpoint in the customer journey. The survey uses scales ranging from 1-3, 1-5, or 1-10, often asking the customer about their experience with customer service or to gauge sentiment regarding a new product launch.
Customer Effort Score (CES)	Identifies pain points in customer processes by determining how easy or difficult customers perceive it to be to interact with your brand to accomplish specific tasks like booking a return or contacting support.
Voice of Customer (VoC)	Utilizes different methods including online surveys, social media monitoring, direct customer interactions, and reviews, offering a holistic approach that includes qualitative and quantitative feedback to obtain a rich understanding of customer expectations, sentiment and perceptions across all channels.

Real-world Example

Let’s say a national pizza chain implements a streamlined ordering system across its 1000 restaurant locations. Customers use the system to customize orders and submit online payments. You know your NPS score has gone down, so now you’re tasked with determining what the customer wants. Implement both NPS surveys and targeted follow-up questions in email. You can learn that younger demographics favor ordering on the app instead of on the desktop, while certain older segments find the navigation of the checkout process too cumbersome to use again. These valuable discoveries might never surface using the standard NPS surveys alone.

Conclusion

Despite some valid concerns and its obvious limitations, NPS can still provide valuable insights into how you can employ excellent customer service. But these days, you need to approach NPS more strategically, and recognize that it only tells part of the story. Combine NPS with other measures to gain a holistic and multi-layered perspective of customer experience. Then, translate that into actionable change to enhance satisfaction, decrease churn, improve customer retention, and grow your business over the long term.

Although NPS can be a valuable starting point, don’t make it your only measurement.

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Source: https://diymarketers.com/net-promoter-score/