Many companies use the Net Promoter Score (NPS) as an indicator when measuring customer loyalty. In recent years, the concept of NPS has been developed further, giving rise to the Net Promoter System. In the following sections, we take a closer look at the Net Promoter System.
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The Net Promoter System: what is it?
The Net Promoter Score is simply the percentage of promoters minus the percentage of detractors. You can measure and track this figure regularly—not only for an entire company, but also for each product, business or customer service team. You can also track it for customer segments, geographical units or functional groups.
The Net Promoter System is much more than this score alone. Practitioners ask customers an unstructured, open-ended question about the reasons for their ratings. This gives employees throughout the company the opportunity to hear customers’ comments in their own words every day. Senior managers incorporate this feedback into their operating systems and use it both to address customer concerns and to drive innovations that generate more promoters. In turn, they use this process to learn more about how they can improve their processes, employees, products and prices over the long term.
How to implement the Net Promoter System
Accurate Net Promoter Scores depend on a steady flow of data. Many companies survey a sample of their customers every week. Frequent surveys allow you to monitor the results for unexplained variations. You can also test new approaches and tactics to determine whether these changes improve the results.
This naturally offers a clear benefit: promoters—that is, loyal and enthusiastic customers who enjoy doing business with you—are worth far more to your company than passive customers or detractors. You can quantify this difference and then use the result to evaluate and choose between investments designed to improve the customer experience.
The first step is to calculate the lifetime value of your average customer. Using this average, calculate the difference in lifetime value between promoters, passive customers and detractors. These are the factors you need to measure and consider:
- Retention rate. Promoters generally tend to have lower rates than other customers, which means they build longer and more profitable relationships with a company.
- Annual spend and share of wallet. Promoters increase their purchases more quickly than detractors because they are more likely to consolidate them with their preferred supplier. They are more interested in new offers and brand extensions than detractors are.
- Pricing. Promoters are often less price-conscious than other customers. Examine the basket of goods or services purchased by each group over a period of six to twelve months, then calculate the margin for each basket. While many loyal customers expect the best deal, others stay with you for different reasons. It is important to know which of your customers are price-sensitive and what impact this has on your financial performance.
- Cost efficiency. Promoters generally require less sales, marketing and advertising expenditure than other customers. In addition, their average order value is usually higher, resulting in lower transaction costs per unit of revenue. They generally make fewer complaints and cause fewer bad debts. Their positive transactions are difficult to quantify, but have a decisive impact on employee motivation and productivity.
- Word of mouth. Promoters generate 80 to 90% of your referrals. Quantify the proportion of new customers who chose your company or product because of this reputation or recommendation and attribute the value of these customers to the promoters. Conversely, detractors are responsible for most negative word of mouth, so include the associated costs in your calculation as well.
This purely economic analysis is not straightforward, but it can help any company estimate the likely return on investment from initiatives designed to create more promoters and fewer detractors.
NPS customer satisfaction survey
The Net Promoter System: examples of its use
Many senior managers talk about improving the customer experience, yet behave in ways that undermine their stated mission. Instead of focusing solely on revenue and profit, you should signal to your employees that customer retention and loyalty are crucial.
This is what that might look like across different departments:
Customer service:
A negative example: A company assesses its customer service employees solely on the number of calls they handle per hour. The problem is that employees rush through their calls and quantity suddenly takes precedence over quality, irritating customers and potentially leaving their problems unresolved.
The Net Promoter System alternative: When gathering feedback after a customer service call, follow the NPS question by asking customers to what extent their most recent experience influenced their rating. If the support call affected their score, either positively or negatively, ask them to explain further. This encourages employees to solve problems instead of rushing through calls. It also highlights areas where improvements are needed.
Product development:
A negative example: A company is concerned about its low customer retention rate, so several departments are put under pressure to solve the problem. A product team that is not customer-focused might try to retain customers by hiding the option to leave a contract or cancel beneath a mass of information. The cancellation rate falls, but customers are frustrated and will speak negatively about the company.
The Net Promoter System alternative: Use NPS to determine how engaged customers are throughout the customer journey, including after conversion. Then report the results to the product team regularly. This encourages product development teams to consider and improve the customer experience as a whole. If the overall experience is good and reliable, it also creates genuine loyalty.
The Net Promoter System helps you address problems directly, train employees, and revise products and policies precisely where it makes sense.
