Net Promoter Score: Calculation and More

Net Promoter Score: Calculation and More

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Dec 18, 2023 11:44 IST
NPS measures customer loyalty with one question: "How likely are you to recommend us?" Rated 0-10, respondents are categorized as Promoters (9-10), Passives (7-8), or Detractors (0-6). NPS equals the percentage of Promoters minus Detractors. It's crucial for gauging satisfaction and guiding improvements.

 

 

 

Have you ever completed a binge-worthy series on Netflix and then seen a pop-up asking, 'On a scale of 0-10, how likely are you to recommend us to a friend?' Ever wonder what that's about? This is Netflix implementing the Net Promoter Score (NPS) system. It's a tool used to measure customer satisfaction and loyalty. By rating your likelihood to recommend Netflix, you help them calculate their NPS. It provides insights into how much their viewers enjoy the service. Also, if they're willing to endorse it to others or not. This feedback is crucial for Netflix to understand their performance and improve the user experience.

 

Table of Content

What is Net Promoter Score?

In 2003, Fred Reichheld, a partner at Bain & Company, developed the concept of Net Promoter Score. This is based on the single question- "How likely are you to recommend our company/product/service to a friend or colleague?"

 

Net Promoter Score (NPS) is a metric used by companies to measure their customer loyalty and satisfaction. It stands out for its simplicity and direct correlation with business growth, unlike more complex customer satisfaction metrics. 

It's calculated on a scale of 0-10 by asking customers how likely they are to recommend a product or service to others. Based on their responses, customers are categorized as Promoters, Passives, or Detractors. NPS helps businesses gauge overall customer sentiment and identify areas for improvement. This is an essential concept in product management as high NPS often indicates strong product-market fit, reflecting that a product meets customer needs and drives loyalty.

Explore Online Product Management Courses to learn about more essential concepts. 

Importance of NPS

Net Promoter Score (NPS) is a vital tool in measuring customer loyalty and satisfaction for several reasons:
Simple and Direct Feedback Mechanism: NPS boils down customer sentiment into a single, straightforward question: "How likely are you to recommend our product/service to a friend or colleague?" This simplicity makes it easy for customers to provide feedback, leading to higher response rates and more reliable data.

Indicator of Customer Loyalty: NPS categorizes customers into Promoters, Passives, and Detractors, offering a clear picture of how many customers are truly loyal (Promoters), indifferent (Passives), or dissatisfied (Detractors). A high number of Promoters typically indicates a strong loyalty base.

Predictive of Business Growth: Research has shown a strong correlation between a company’s NPS and its future growth. High NPS scores often predict increased customer retention, repeat business, and word-of-mouth referrals, all of which are critical drivers of growth.

Benchmarks for Comparison: NPS allows businesses to benchmark their performance against competitors and industry standards. Knowing where you stand in your industry helps identify whether customer satisfaction and loyalty are areas of strength or need improvement.

Guides Customer-Centric Improvements: Regularly tracking NPS can highlight trends and shifts in customer attitudes. This ongoing feedback loop is invaluable for businesses in prioritizing customer-centric improvements and making strategic decisions that enhance the overall customer experience.

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Net Promoter Score Calculation

Conduct a Survey: Ask your customers the key NPS question: "On a scale of 0-10, how likely are you to recommend our product/service to a friend or colleague?"
Categorize Responses:

 

Promoters (score 9-10): Loyal enthusiasts who will keep buying and refer others.

Passives (score 7-8): Satisfied but unenthusiastic customers, vulnerable to competitive offerings.

Detractors (score 0-6): Unhappy customers who can damage your brand through negative word-of-mouth.

Calculate the Percentages:

% Promoters: (Number of Promoters / Total Respondents) × 100

% Detractors: (Number of Detractors / Total Respondents) × 100

Compute NPS:

Subtract the percentage of Detractors from the percentage of Promoters.

NPS = % Promoters - % Detractors

What Constitutes a Good NPS Score

A "good" Net Promoter Score (NPS) can vary significantly depending on industry, market conditions, and individual company goals. Understanding what constitutes a good score involves both absolute and relative evaluation methods.

Absolute Evaluation of NPS:

In absolute terms, NPS can range from -100 (every customer is a Detractor) to +100 (every customer is a Promoter). Here's a general guideline:

Below 0: A negative NPS indicates that a business has more Detractors than Promoters, suggesting serious issues with customer satisfaction and loyalty.

0 to 30: A positive score, but with significant room for improvement. This range suggests moderate customer satisfaction.

30 to 70: Generally viewed as a good score, indicating that a company has substantially more Promoters than Detractors.

Above 70: An excellent score, reflecting extremely high customer satisfaction and loyalty. This is often seen in highly customer-centric industries or niche markets.

Relative Evaluation of NPS:

Comparing your NPS with industry benchmarks is crucial for a more meaningful assessment:

Industry Averages: NPS can vary widely by industry. For example, luxury brands might typically have higher NPS scores than utility companies. Knowing the average score in your industry is vital for context.

Competitive Benchmarking: Comparing your score against direct competitors provides insight into your relative position in the market.

Historical Comparison: Tracking changes in your NPS over time helps assess the impact of business decisions and market changes on customer perception.

Regional Variations: Customer expectations and cultural factors can influence NPS, making it important to consider geographical context in multinational businesses.

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Industry-Specific NPS Benchmarks

Industry

Typical NPS Range

Financial Services

 

Banks, Credit Unions

35-55

Insurance

30-50

Retail

 

General Retail

30-70

Online Retail

40-80

Technology

 

Software and SaaS

30-40

Consumer Electronics

40-70

Telecommunications

 

Cable/Satellite TV

0-30

Internet Providers

0-20

Wireless Carriers

10-40

Healthcare

 

Hospitals

30-70

Medical Practices

25-60

Pharmaceuticals

20-40

Hospitality & Travel

 

Hotels and Resorts

40-60

Airlines

10-50

Travel Agencies

30-70

Automotive

 

Car Dealerships

20-60

Auto Service Centers

10-40

Food & Beverage

 

Restaurants

15-60

Fast Food

10-40

Utilities

 

Energy/Water Providers

0-20

Professional Services

 

Consulting Firms

20-60

Legal Services

15-40

Entertainment & Media

 

Streaming Services

10-40

TV and Radio

20-50

Global NPS Trends and Cultural Differences

Example: Japan vs. the United States

Cultural Response Patterns:

In Japan, customers are known for being more reserved in their feedback. A high NPS in Japan might not involve as many 9s or 10s compared to the United States, where customers are more likely to use the extremes of the scale.

Data Illustration: A company might receive an NPS of +50 in the U.S. but only +30 in Japan, yet in both cases, it can be considered an excellent score respective to the cultural context.

Example: Technology Sector

Economic and Technological Influence:

In regions with rapid technological advancements, like South Korea or Singapore, customers might expect innovative digital solutions, which can influence their NPS responses.

Company Example: Samsung, a South Korean tech giant, must consistently innovate to maintain high NPS scores in a market with high expectations for tech products.

Transactional vs. Relational NPS Programs

Example: Amazon (Transactional NPS)

Transactional NPS:

Amazon, with its focus on e-commerce, might measure NPS after each purchase or customer service interaction.

Data Use: This approach allows Amazon to quickly identify and rectify issues at specific touchpoints, like the checkout process or customer service interactions.

Example: American Express (Relational NPS)

Relational NPS:

American Express might conduct regular NPS surveys to gauge overall customer satisfaction and loyalty over time.

Long-term Focus: This approach is crucial for a financial services company where customer relationships span years, and loyalty is linked to trust and consistent service quality.

Key Insights

Global NPS Considerations:

Companies operating in multiple countries must tailor their interpretation of NPS to account for cultural nuances in feedback.

For instance, a global hotel chain like Marriott would need to interpret NPS scores differently in Asia compared to Europe due to varying cultural expectations in hospitality.

Transactional vs. Relational NPS:

The choice between transactional and relational NPS should align with the company’s nature of business and customer interaction frequency.

For example, a fast-food chain like McDonald's might prioritize transactional NPS to assess customer satisfaction at each visit, while a car manufacturer like Toyota would focus more on relational NPS, reflecting the long-term customer relationship.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio