net-promoter-score

What Is The Net Promoter Score And Why It Matters

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?

While the old adage of “the customer is always right” may be somewhat outdated now, there is no denying that customer satisfaction is the ultimate benchmark of successful businesses.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.

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.

engines-of-growth

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:

Promoters

Loyal customers who score either a 9 or a 10 are your biggest fans and will happily tell others about their buying experience.

Passives

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.

Detractors

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.

Businesses can tap into this growth by incorporating NPS data into their marketing strategies.

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.

The NPS allows your business to clarify where its marketing strategy is falling short.

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.

Focus

Promoters allow your marketing strategy to focus on what matters and build a sustainable business model

By understanding what promoters love about your brand specifically, you gain clarity on what sort of marketing is most effective at recruiting new customers.

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.

growth-marketing
Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.

In short, in the growth hacking process, there are two elements which are crucial to develop a growth strategy:

  • 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.

This is critical, as no growth strategy can be built on a mediocre 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!

Key takeaways

  • 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

Business Engineering

business-engineering-manifesto

Tech Business Model Template

business-model-template
A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Web3 Business Model Template

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Business Competition

business-competition
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.

Technological Modeling

technological-modeling
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Transitional Business Models

transitional-business-models
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.

Minimum Viable Audience

minimum-viable-audience
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.

Business Scaling

business-scaling
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.

Market Expansion Theory

market-expansion
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.

Speed-Reversibility

decision-making-matrix

Asymmetric Betting

asymmetric-bets

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Revenue Streams Matrix

revenue-streams-model-matrix
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

FourWeekMBA resources used to draw the framework:

Business model case studies:

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