The Net Promoter Score (NPS) is a measure of the ability of a product or service to attract word-of-mouth advertising. NPS is a crucial part of any marketing strategy since attracting and then retaining customers means they are more likely to recommend a business to others.
- Why does the Net Promoter Score matter?
- How is the Net Promoter Score calculated?
- Clarifies customer satisfaction and marketing liabilities
- Encourages employee investment and provides a relevant benchmark
- Fuels organic growth by identifying loyal customers
- Why are promoters so important?
- Allows your marketing strategy to be trackable
- The net promoter score in the growth hacking context
- Key takeaways
- FourWeekMBA Business Toolbox
Why does the Net Promoter Score matter?
While the old adage of “the customer is always right” may be somewhat outdated now, there is no denying that customer satisfaction is the ultimate benchmark of successful businesses.
Especially in the era of customer obsession.
Word of mouth (viral engine) is very powerful, and among the engines of growth, and the Net Promoter Score is one of those simple, yet powerful metrics to measure that.
How is the Net Promoter Score calculated?
A survey is usually offered to customers to gauge their willingness to recommend products or services to others on a scale of 1-10. Depending on the results of that survey, the customers will fall into these three categories:
Loyal customers who score either a 9 or a 10 are your biggest fans and will happily tell others about their buying experience.
Satisfied customers who score a 7 or 8 but who are not enthusiastic enough to tell others. Passives may be indifferent to repeat buying and could switch to a competitor.
Unsatisfied customers who score between 0 and 6. Detractors are likely to share bad experiences with their friends and family and so are damaging to your brand.
How do you compute the Net Promoter Score?
The NPS score, then, is simply the percentage of promoters minus the percentage of detractors.
Any score above 0 is considered a pass mark because there are more promoters than detractors.
However, the companies that experience the most growth will have scores in the range of 50-80.
Here are some of the benefits of doing so.
Case study: Imagine you asked 100 people to score your software. Of those, 30 were detractors, 30 passives, and 40 promoters.
Your net promoter score will be 10 (40 promoters – 30 detractors).
Clarifies customer satisfaction and marketing liabilities
Let’s face it; every business likes to think that it offers the best products in the world.
But is this reflected in reality?
The Net Promoter Score is a good way to find out because it compares the perceived level of customer satisfaction with the actual level.
If a difference of opinion exists between the marketing department and the customer, then the NPS will quickly identify where it exists.
These gaps often exist because of marketing liabilities such as:
- Advertising claims that don’t live up to consumer expectations of reality.
- Product defects, weaknesses, or flaws.
- Improper or incomplete usage instructions.
Furthermore, it allows certain shortcomings to be rectified that have the potential to cause customer dissatisfaction and hurt the brand image.
Encourages employee investment and provides a relevant benchmark
Firstly, the NPS is easy to understand.
From the survey results, every member of the marketing department will be clear on what they are doing right and what still needs improvement.
A high NPS not only increases customer satisfaction, but it also increases employee engagement.
Multiple studies have shown that engagement, or the emotional commitment an employee has to their employer, produces marketing campaigns that result in higher and repeated sales.
Secondly, the NPS is a universal benchmark.
It allows you to compare your efforts with publicly available data in your niche and also from your competitors.
NPS data also provides marketing teams with tangible information that they can use to demonstrate progress to clients and stakeholders associated with the company.
Fuels organic growth by identifying loyal customers
When businesses receive the results of their NPS surveys, the temptation may be to focus on customers who fall into the passive and detractor categories.
However, it is important not to overlook the promoter category.
Research by Nielsen found that over 70% of study participants were more likely to buy a product if a friend mentioned it through email or social media.
A Harvard Business Review study also found that customers referred through word of mouth were worth 16% more in dollar terms than those who found a business through other channels.
Why are promoters so important?
There are several reasons:
Promoters fuel organic growth of your business through brand advocacy
To some extent, they become your marketing department.
They are more than happy to spread the word about your business for free.
They spend more
Research by RJMetrics also suggests that promoters spend 30 times more money on your products than the once-off buyer.
Thus, developing marketing strategies that keep promoters happily engaged is important.
Loyalty programs, discounts on future purchases, and incentives for spreading the word are examples of effective strategies.
Allows your marketing strategy to be trackable
It might seem obvious, but you cannot improve what you cannot track.
The most effective marketing strategies are backed up by hard data.
Tracking your Net Promoter Score allows the marketing team to refine their strategies based on how well certain changes are received.
With this feedback, they can devote more resources to strategies that work and less to those that do not.
So that you can build a viable business model, quickly.
Regular tracking also allows trends and seasonal changes to be identified quickly.
Technology, for example, is constantly evolving and some consumers will inevitably become passive or unsatisfied customers if they are left with outdated products.
Passive customers, as we have learned, are indifferent to your products and can be lost to competitors easily.
Since it is much easier to retain existing customers than it is to recruit new ones, marketing efforts must be directed toward converting passives into promoters.
Here, NPS survey data is invaluable.
It enables businesses to refine their products and associated marketing strategies.
Such strategies become more flexible to current trends and stand a better chance of retaining customers who might be potentially lost forever.
The net promoter score in the growth hacking context
The next promoter score is an important metric also in the context of growth hacking.
- The “aha experience.”
- And the must-have product.
The “aha experience” represents the moment in which users or potential customers realize the full potential of your product.
From there, it’s critical to understand whether your product is a must-have.
In short, how much would people be disappointed if your product were withdrawn from the market tomorrow?
From there, the net promoter score helps grasp how much built-in viral growth the product has, and therefore you have the basis to push as much as possible!
- Considering the ease with which NPS data can be collated, the benefits of using it to deliver marketing strategies are tremendous.
- NPS data clarifies customer satisfaction and addresses gaps in a marketing message or product development.
- NPS data is also easy to digest, increasing buy-in across different departments and increasing employee engagement.
- It also provides a relevant benchmark that businesses can use to judge their efforts against others in their industry.
- Perhaps most importantly, it allows businesses to devote their resources to where it matters most – their promoters.
- Businesses with effective marketing departments understand that promoters are enthusiastic brand evangelists.
- They offer a low-cost, high-profit opportunity for growth and by tracking the relative proportion of promoters over time, businesses can stay one step ahead of trends and prevent brand desertion before it occurs.
FourWeekMBA Business Toolbox
FourWeekMBA resources used to draw the framework:
- What Is Business Model Innovation And Why It Matters
- Types of Business Models You Need to Know
- Business Strategy: Definition, Examples, And Case Studies
- Marketing Strategy: Definition, Types, And Examples
- Platform Business Models
Business model case studies:
- How Does PayPal Make Money? The PayPal Mafia Business Model Explained
- How Does WhatsApp Make Money? WhatsApp Business Model Explained
- How Does Google Make Money? It’s Not Just Advertising!
- How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
- The Google of China: Baidu Business Model In A Nutshell
- How Does Twitter Make Money? Twitter Business Model In A Nutshell
- How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
- How Amazon Makes Money: Amazon Business Model in a Nutshell
- How Does Netflix Make Money? Netflix Business Model Explained