NPS
MBA – III Semester class
NPS Defined
Net Promoter Score (NPS) is a customer loyalty score, ranging from -100 to
100, calculated by asking customers one question: “On a scale from 0 to 10,
how likely are you to recommend this product/company to a friend or
colleague?” Data from this question helps businesses improve upon service,
support, delivery, etc. for increased customer loyalty.
Why is NPS important?
NPS can be used as a predictor of business growth. When your company’s
NPS is high (or, at least, higher than the industry average), you know that
you have a healthy relationship with customers who are likely to act as
evangelists for the brand, fuel word of mouth, and generate a positive
growth cycle.
NPS is a valuable metric on a strategic level, but by itself, the score is not
enough to be useful or paint a complete picture. The overall NPS system is
important because it allows businesses to:
Ask follow-up questions as part of the standard NPS survey. By asking
customers why they've given a specific score, organizations of any size
can understand what they're doing well and where they could be
improving
Track and quantify a score over time, creating internal benchmarks
Rally all employees around one mission-critical objective: earning more
enthusiastic customers
How to calculate NPS?
NPS is calculated by subtracting the percentage of customers who answer
the NPS question with a 6 or lower (known as ‘detractors’) from the
percentage of customers who answer with a 9 or 10 (known as ‘promoters’)
Net Promoter Score scale: detractors, passives, promoters
In the Net Promoter system, customers are categorized into three
groups—promoters, detractors, passives—depending on how they
answer the standard “how likely are you to recommend us” question.
How to interpret NPS?
Net Promoter Score is always expressed as a number from -100 to 100; the
score is negative when a company has more detractors than promoters, and
positive in the opposite situation.
In the Net Promoter system, average scores vary greatly between
industries:
Knowing NPS averages by industry helps to understand how key competitors
in a specific market are doing and gives extra context to what counts as a
‘good’ or ‘bad’ score.
What is a good NPS score?
Given the available -100 to +100 range, any score above 0 reads as ‘good’
because it indicates that a business has more promoters than detractors.
Top-notch companies generally have an NPS of 70 and above, but if you’re
thinking this is the domain of big, global companies only, think again: in
2018, Netflix had an NPS of 64, PayPal scored 63, Amazon 54, Google 53,
and Apple 49.
A perfect score of 100 indicates that every survey respondent would
recommend a company to someone else—a score that,
apparently, nobody has ever achieved.
How to calculate NPS?
Rank Respondents %age
0 9
1 2
2 3
3 3
4 7
5 23
6 25
7 55
8 118
9 80
10 238
0-6 72 13%
7-8 173 31%
9 - 10 318 56%
Total Response 563
NPS Score 44%
Drawback
Insufficient scientific base for the outcome and that the model is too simple
Cannot accurately measure customer behavior.
Recommendation of one customer is not always as valuable as that of
another one.
More useful in markets with a lot of competition where potential buyers
have a greater tendency to ask friends or acquaintances for advice before
deciding about a purchase.
Another limitation of NPS is that it only takes into account customers, while
also a lot of non-customers can act as detractors and generate bad word-of-
mouth publicity.
No distinction is made between a 0 score and a 6 score, while there is
obviously a substantial discrepancy between those two.
Makes no difference whether there are 70% Promoters and 30% Detractors
or 40% Promoters and 0% Detractors. Both result in an NPS of +40 which
doesn’t seem very logical
What is a good NPS score?
Generally speaking, a Net Promoter Score that is below 0 would be an
indication that your business has a lot of issues to address.
A score between 0 and 30 is a good range to be in, however, there is still
room for progress. If your NPS is higher than 30 that would indicate that
your company is doing great and has far more happy customers than
unhappy ones.
An NPS over 70 means your customers love you and your company is
generating a lot of positive word-of-mouth from their referrals. The higher
your NPS is, the more likely it is that your customer referrals will convert into
new leads and more revenue for your company.
Do your best to keep your score above 0. Even though an NPS of -10 might
be higher than others in your niche, finding yourself below zero might be
discouraging and it should definitely ring a bell as to the provided customer
experience.
NPS score of some top companies
Apple 47
Google 11
Microsoft 45
Coca Cola 0
Facebook -21
Toyota 33
IBM 27
Disney -7
McDonalds -8
Samsung 67
GE -5
Amazon 25
Starbucks 77