Net Promoter Score or NPS is a metric which measures customer loyalty and customer satisfaction. Did we just say ‘Customer Satisfaction’? Don’t worry, we will familiarize the term to you.
Customer satisfaction is the level of contentment and fulfillment customers have with your product. It is achieved by delivering good customer service and exceeding expectations from time to time.
Only if your customers are satisfied will they be loyal. Yes, satisfied customers are more likely to stick to purchasing your product over those of your competitors. This entails customer loyalty. All of these dots connect to one larger picture.
Online reviews speak your customers’ mind. The internet has become a platform to voice their experiences regarding a product, brand, or a service. In fact, the stats and the figure depict the same.
Now, don’t get overwhelmed. As a business, the following question might trouble you.
“What do my customers think about me?”
It is for this reason, the Net Promoter Score (NPS) exists. It is calculated out of a scale of 1-10 which is based on a simple question.
‘On a scale of 1 to 10, how likely are you to recommend our product to your friends and family?’
Based on the answers, the respondents are grouped into 3 categories.
Customers who rate you 9 or 10 are the Promoters. They are the folks who have had a positive experience and are brand advocates who spread the good word about you.
Unhappy and dissatisfied customers who rate you anywhere between 0 to 6 are called the Detractors. Not resolving their issues, will flood your brand with negative reviews.
The group of customers who are neither happy nor unhappy with your product or service are the Passives. They give you a score of 7 or 8.
What is a good NPS?
A frequent question asked by businesses is ‘What is a good Net Promoter Score’? The answer is complicated because there isn’t one single answer to the question.
Now, let us understand the factors that determine whether your score is good, bad, or average.
1. Your Niche or the Industry
The industry or the segment that you are in largely affects your NPS score. To give you an example, the average NPS for the auto dealers industry is 39 while the average NPS for Internet Service Providers is 0 with the -16 and 19 being the lowest and the highest scores. Why is this so?
Because the nature of your niche or industry largely influences your average NPS score.
While this is one aspect, others like Tesla are in a high niche segment where there are relatively few choices. They have positioned themselves as a luxury and eco-friendly car manufacturer which hardly has any competitors.
This hard truth of niches and NPS should be digested by brands if they are to ever focus on improving their NPS score.
2. Level of patience in customers
The tolerance level of the customers determines your NPS and the average NPS score in the industry. Think about it, when customers experience poor customer service, would they stay or leave?
More often than not, they choose to leave. Customer churn is also another reason for the decrease in your Net Promoter Score. Remember, we talked about the Detractors?
You being the best judge of your business can ascertain the tolerance level of your customers. Do they stay after a single bad experience? What does it take to change a customer’s mind after they find that their needs haven’t been met on an immediate basis?
If your answer is on the higher end of the spectrum, then it is time that you decided to act fast. Customer retention correlates to a higher NPS. Don’t worry, we won’t proceed further without its meaning.
Customer retention refers to the ability of a business to retain its customers without leading to churn or defection. It is a byproduct of customer loyalty, where customers prefer your products over those of your competitors. According to HBR, there are two benefits of customer retention.
- A 5% increase in customer retention leads to an increase in profits by 25-95%.
- Acquiring a new customer is 5 to 25 times more expensive than to retain an existing one.
Depending on the functional departments in your organization, either the customer success, operations or the customer service department should work on delivering customer service par excellence to ensure delightful customer experience.
3. Switching Barriers
Switching barriers is a microeconomics term. Yes, we are talking things from a different standpoint. In industries where there is a high cost to be incurred to make a switch by the customer, they are less likely to make a switch.
Case in point is the car industry. Picture this!
You have purchased a car recently and it seems to be running good. But, after a few months, it starts giving a few problems. The customer service didn’t solve any problems and though frustrating you can’t do much because it is a financial blow.
Switching options are tough because of the high finance involved. This doesn’t mean you can be laid back and not take control of things. Negative reviews mean your reputation is at stake which means customers aren’t willing to recommend you.
Thus a problem of high detractors and passives bring down your Net Promoter Score
Now that you understand the factors influencing the average NPS scores across industries, here are the following steps to effectively benchmark your NPS with those of your competitors.
Interesting reading : Net Promoter Score vs CSAT Score - What should you use for your business?
Steps to benchmark your NPS score
1. Compare your NPS with your industry average
To get a clear insight, start comparing your NPS with the industry average and NPS of your competitors. We stress the fact that you should only be comparing your scores within your industry.
A bank cannot compare itself within a retail store because customers carry different expectations. It isn’t always exciting to visit a bank. This is why the average NPS of Banks is on a lower side.
Don’t limit to yourself to the comparison, conduct a detailed competitive analysis. This will help you in knowing your weak points and areas that need improvement.
2. Examine the NPS scores by region and geography
Behaviors of people vary according to their nationality and ethnicity. The reason is attributed to culture, norms and conservative beliefs. It has been observed that Americans are more gracious and rate positively compared to their European and Australian counterparts.
Germany is orthodox when it comes to rating any service provider. They tend to rate low. Japan too follow the same suit because it is considered a poor etiquette to rate anyone either too low or high.
3. Research the channel used to survey
One caveat that firms comparing NPS with their competitors should note that comparing an NPS campaign which used a different methodology or channel with theirs is useless.
The channels used to send NPS surveys are listed below:
Email surveys tend to have low response rates. Pretty sure that even you wouldn’t have really responded to emails from businesses. But, here’s the good news. Customers who respond to email surveys are more likely to give qualitative feedback.
Since they are keen, you will be able to find the reason for their ratings.
2. In-app or web surveys
In-app or web surveys have a higher response rate compared to emails but, there is a catch. The customer feedback would be based on a context. It would be related to any specific transaction such as a purchase, support ticket raised and the like.
One con of this method is that qualitative feedback can’t be obtained.
3. SMS surveys
SMS surveys have the immediacy. An effective method to generate NPS responses, it offers a personal touch since customers are always hooked to their mobile screens.
When deciding the survey channel, make sure you weigh other factors such as cost and demographics.
4. Do a self-analysis
The Net Promoter Score alone is a vanity metric. The main idea should be to decide to arrive at the score. Do an NPS check for a specific time period and see if there is any improvement.
For starters, let the time period be three to six months. If there is a substantial increase by 5-10% then kudos to you and your team for having worked hard for it. However, if there isn’t any increase, it is time to introspect and determine where you went wrong.
Take appropriate measures to correct flaws and loopholes across all the touchpoints. As stated earlier, a higher Net Promoter Score relates to high growth and an increase in profits.
Net Promoter Score success stories
Having learnt the benchmarking steps and the way the average NPS score across industries are determined, let’s take a look at some brands who benefited with an increased Net Promoter Score.
1. Apple - Uses NPS to gauge performance of their stores
The gadget leader is a name synonymous with quality and superior customer experience. As of 2017, Apple’s NPS was 72. That is a pretty high score. But, would you believe that Apple wasn’t the same a decade ago?
In 2006, Apple’s NPS was 57 and it adopted certain measures to turn things around. The first ingenious thing it decided to do was to set up a tech support station by the name GeniusBar.
In an effort to improve customer service and increase its NPS, the store managers personally called up customers to resolve their issues. The tech giant uses Net Promoter Score to gauge the performance of its 300+ stores.
All these measures paid off as it went from making $108 billion to $215 billion over the course of the next five years. Talk about excellence in customer service.
2. Starbucks - Helpful insights from NPS
The year 2008 saw Starbucks devising a one of its kind strategy to increase customer engagement. It created ‘MyStarbucksIdea’, a platform for customers to contribute their ideas on what they would like to see in the menu.
Since its inception in 2008, 275 ideas were implemented. This helped the coffee maker witnessed a significant increase in ROI. The impact it created made it an epitome for the best Voice of the Customer channel.
Even Starbucks experienced a low score when there was a decline in customer satisfaction levels by 3%. The reason was attributed to the old menu being discontinued. Soon, Starbucks realizing the mistake decided to reintroduce the old menu.
Its NPS score increased from 75 to 76 in 2016. As of 2018, its score stands at 78. No wonder people throng their outlets.
3. Best Western Hotels - Increase in guest satisfaction
Best Western Hotels reported having an NPS of 61.7% which was a 100% increase from 2007.
The main reason for this increase was guest satisfaction. A component most hotels are taking up seriously. As part of its customer-centric initiatives, it came up with ‘I Care Every Guest, Every Time’ which is a hotel staff training program implemented to facilitate operational excellence.
It is a program powered by virtual reality. This was implemented in its chain of 2000+ hotels. Its loyalty program Best Western Rewards offers a 10% discount and un-expirable points.
Now, that’s something unconventional. It has a global membership of 35 million people. Their social media team deserves applause as they were instrumental in increasing the response time by 14%. Along with this feat, they also reduced the number of response period from 8 days to 2 days, leading to an increase in online reviews.
Net Promoter Score has been misunderstood by businesses. This blog post was written to provide the right knowledge to go ahead with NPS benchmarking. The key takeaway is to focus on self-improvement over time.