The use of the Net Promoter Score (NPS) is increasingly common in surveys and studies on customer satisfaction, loyalty and experience. In this post, we explain in basic terms what NPS is and what, in our view, its pros and cons are.
What is NPS?
NPS is a very popular metric obtained by asking customers if they would recommend a product or service (for example, with the question “How likely would you be to recommend this product/service to friends or family?”).
Based on the answers, which are on a scale of 0 to 10, customers are classed into three groups:
- Promoters: those who answer 9 or 10. They are considered loyal customers and enthusiasts of the product or service and actively recommend it.
- Passives: those who answer 7 or 8. They are considered satisfied but not enthusiastic customers who can be easily swayed by the competition.
- Detractors: other customers answering 0 to 6. These are considered dissatisfied customers who buy the product or service because they have no choice.
The NPS index is calculated by subtracting the percentage of Detractors from the percentage of Promoters. Passives are only counted in the calculation of percentages. An NPS of -100 would mean that all the customers were Detractors. An NPS of 100 would mean that all the customers were Promoters. In general, an NPS greater than zero is considered good news for the company.
Below we have created a brief summary of the pros and cons of using NPS.
NPS – Pros
- Easy surveying: customers more readily answer surveys when they are short and simple. And this is what NPS surveys tend to be. Often times, they only contain one question and an open field for suggestions. This helps simplify the process, obtain more answers and get more representative samples of the customer universe.
- Easy to explain: we don’t need to be experts in customer analysis to understand what NPS is. This allows companies that use NPS to understand the results and makes light work of reporting and data analysis.
- Gives focus: with a single NPS index, we can centralize, simplify and give focus to the attention of executives and employees in general. It is useful for improving the company’s customer orientation because it is an indicator that can be shared with employees and included in the dashboard of the company’s management.
- It is universal: it can be used for all types of products and services and is very popular, so it is relatively easy to compare results with the market (benchmarking).
- Lack of reliability and accuracy: several studies suggest that it is more accurate and reliable to measure customer loyalty using indexes based on averages of indicators associated with various questions that use scales of satisfaction. It has also been shown that other individual questions, such as likelihood of repurchasing, may be more reliable predictors of loyalty.
- One-dimensional: the simplicity of NPS is also its weakness. A question-based indicator does not give us any understanding of or details about the underlying causes of customer loyalty or satisfaction. We can find out if something is going good or bad generally, but it is difficult to diagnose what is really happening and how it can be improved because we have no information from the customer about other dimensions of the product or service (such as customer service, product reliability, price, after-sales service, etc.)
- Low resolution: using a scale of 0 to 10 to end up “summarizing” the answers on a scale with 3 positions (promoters, liabilities, detractors) results in loss of information and resolution. It is not the same to score something with a 0 or with a 6 and yet, NPS puts them into a single group as though they were the same.
- Insensitive to different cultures: using the recommendation question in global projects poses a risk because the cutoffs of the groups and even the interpretation of the question may differ according to the culture of origin of the survey respondent.
NPS is a metric for measuring customer loyalty. It is very popular, easy to explain and easy to use but it also has significant disadvantages if we want accurate and reliable knowledge of customer behavior and to develop action plans for improvement.
Depending on the type of customer and our needs as a company, we have to judge whether the advantages of its use outweigh the disadvantages. Then we can decide whether and how to use NPS.
More information on NPS Surveys.