Today, I would like to cover a very interesting topic that is is useful in terms of product development, product management, marketing, and business in general.
The Net Promoter Score (NPS) is a metric that measures the willingness that customers have to recommend and be loyal to a company (Reichheld, 2011). Just by asking this question, management can measure the satisfaction that a customer has about the company and how the customer is willing to recommend the products. Also, it has been proved that when this measurement of satisfaction is correctly calculated, it is a predictor of a company’s financial performance (Freed, 2013).
In terms of loyalty, there are three types of customers:
- Detractors: customers that will give you a rating between zero to six because they are dissatisfied with your product. They speak badly about their experience with your product/company.
- (Passively) Satisfied: gives you a rating of seven and eight but they won’t engage in promoting and recommending your product. The product is “OK” to them.
- Promoters: these customers give your product a nine of ten. They are usually the ones recommending the products to family and friends. They put their reputation on the line to defend and recommend a product.
The Net Promoter Score is calculated by getting the percentage of customers that responded with nine and then (Promoters) minus the percentage of the customers that responded from zero to six (Detractors).
An Example with a Fictitious Telephone Company (ABC Tel)
Let’s pretend that the following table is the survey done with 10 participants with the following two questions about ABC Tel: How likely is it that you would recommend ABC Tel to a friend or colleague? Why do you feel this way?
The Net Promoter Score based on the previous survey is as follow:
|Net Promoter Score
Analysis and Recommendations to Improve ABC Tel’s Customer Loyalty
After calculating the net promoter score and reviewing the second question of the questionnaire, ABC Tel has a negative score of -20 (very bad) which means that they need to work on creating promoters out of the current customers. The first step is making sure that they have enough devices in their store that when a person visits and picks a smartphone, they can take it home the same day. A cellphone is a necessity and people cannot wait days before they get the new devices. So, having a good inventory of the products and also using analytics to forecast the devices that will be popular let them know how much to order for each device.
As this is a congested market with a plethora of options for the customers, ABC Tel needs to create a differentiator from the point of the customer experience at the store. Customers are taking too long to pick a phone and be lucky enough to be available at the store. They should also use analytics to learn about this particular customer’s previous phones so they can recommend upgrades to similar phones that they are likely to have little resistance to adapt. For instance, if the customer already has an Android phone, suggest similar phones in the same category that are Android devices instead of iPhone smartphones.
Based on the answers, ABC Tel wireless service has the best coverage. But, that is irrelevant in some scenarios. People that live in cities, might prefer better pricing options than coverage because even other companies with less national coverage have great coverage in the cities with cheaper prices. Therefore, when these customers that live in the city see competitors’ prices, they don’t see benefits to staying with ABC Tel and being a promoter.
Finally, ABC Tel tries to solve the problem of its users by providing wireless communication. Nevertheless, other companies solve the same problem at a lower cost. Therefore, ABC Tel needs to think of ways of being a differentiator and combine its services where one of them is free for loyal customers so they can increase the promoters and attract previous detractors to become promoters.
Freed, L. (2013). Innovating Analytics: word of mouth index–how the next generation of net promoters can increase sales and drive business results. Wiley.
Reichheld, F. F. (2011). The Ultimate Question 2.0 (Revised and Expanded Edition): How Net Promoter Companies Thrive in a Customer-Driven World. United Kingdom: Harvard Business Review Press.
Reichheld, F. F. (2003). The one number you need to grow. Harvard Business Review. https://hbr.org/2003/12/the-one-number-you-need-to-grow