Many companies use NPS as part of their customer relationship management (CRM) strategy because the metric is easy to calculate. The company just has to ask their customers one simple question: “How likely is it that you would recommend us to a friend or colleague?”
Answers are assigned a score from zero to 10, with 10 being the most positive. Customers are then divided into three categories: Promoters, Passives and Detractors. Promoters (score: 9-10) are the most loyal, Passives (score: 7-8) are satisfied, yet unenthusiastic, and Detractors (score: 0-6) are unhappy. The Net Promoter Score is calculated by subtracting the percentage of Detractors from the percentage of Promoters.
NPS was first introduced in a 2003 Harvard Business Review article by Fred Reichheld entitled “The One Number You Need to Grow.” Reichheld felt that it was important for a company to know how many of its customers were assets and how many were liabilities. By correlating the customer's subjective response to an objective number, the metric can be used to legitimately drive a company's internal priorities.
Reichheld maintains that the Net Promoter Score can be used as a key performance indicator (KPI) for growth because loyalty, in his estimation, is the most important factor for generating sustainable growth. His research found that companies with a better ratio of Promoters to Detractors grew more quickly than their competitors when they maintained an NPS within a 50-80 overall range. Subsequent research from others has challenged that conclusion and NPS detractors recommend that if an NPS score is used, it should be supplemented with additional questions to provide the company with insight into customer motivation so actionable items can be identified.
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