Net Promoter Score (NPS)

What is Net Promoter Score (NPS)?

Net Promoter Score (NPS) is a customer loyalty metric that measures how likely customers are to recommend a company’s product or service to others. It is calculated by asking customers to rate the likelihood of recommending the product on a scale from 0 to 10. Respondents are categorized into three groups: Promoters (9-10), Passives (7-8), and Detractors (0-6). The score is then calculated by subtracting the percentage of Detractors from the percentage of Promoters, producing a score between -100 and 100.

When is NPS Used?

NPS is widely used in the following scenarios:

1. Customer Satisfaction Surveys: To gather insights into how satisfied customers are and their likelihood to recommend the product.
2. Tracking Customer Loyalty Over Time: It is used periodically to measure changes in customer satisfaction and loyalty.
3. Comparative Benchmarking: NPS allows companies to compare their customer loyalty performance against industry benchmarks.
4. Identifying At-Risk Customers: By identifying Detractors, businesses can focus on retention efforts for those who are at risk of churning.

Pros of Net Promoter Score

1. Simple to Implement: The survey consists of only one question, making it easy for customers to respond and for businesses to implement.
2. Easy to Understand: NPS provides a straightforward, easy-to-interpret score that can be communicated across different teams.
3. Benchmarked Across Industries: NPS is widely used, which allows for easy comparison across different companies and industries.
4. Actionable Insights: By identifying Detractors, businesses can focus on improving customer satisfaction and reducing churn.

Cons of Net Promoter Score

1. Oversimplification: NPS reduces complex customer sentiment into a single number, which might obscure important qualitative insights.
2. Cultural Bias: Customers from different regions or cultures may interpret the rating scale differently, leading to skewed results.
3. Limited Scope: NPS doesn’t provide insight into the reasons behind customer satisfaction or dissatisfaction. Additional follow-up questions are often necessary.
4. Lagging Indicator: NPS is a retrospective metric that reflects customer sentiment after the fact, and it doesn’t always predict future behavior.

How is NPS Useful for Product Managers?

1. Tracking Customer Loyalty: NPS allows product managers to assess whether customers are satisfied enough to recommend the product, serving as a gauge of product success.
2. Benchmarking Performance: Product managers can use NPS to compare their product’s performance against competitors or industry standards.
3. Prioritizing Customer Feedback: By identifying and analyzing responses from Detractors, product managers can prioritize which areas of the product need the most improvement.
4. Measuring the Impact of Changes: NPS can be used to track the impact of new features or updates on overall customer satisfaction and loyalty.

When Should NPS Not Be Used?

1. For In-Depth Feedback: NPS is not suitable when businesses need detailed feedback on customer experiences, as it provides only a high-level overview.
2. For Niche or Complex Products: Products that cater to highly specialized markets or have complex user interactions might require more granular feedback than NPS can offer.
3. As a Standalone Metric: NPS should not be the only metric used to measure customer satisfaction. It is important to supplement NPS with other qualitative and quantitative data.
4. When Immediate Action is Required: Since NPS is a lagging indicator, it might not be effective for real-time decision-making or immediate problem-solving.

Additional Questions for Product Managers

How can NPS be combined with other metrics for better insights?

• NPS can be combined with customer effort score (CES), customer satisfaction score (CSAT), and qualitative feedback from surveys or interviews to provide a more comprehensive view of customer satisfaction.

What tools are commonly used to track NPS?

• Tools such as SurveyMonkey, Qualtrics, and Delighted are frequently used to implement NPS surveys and track customer feedback.

How often should product managers track NPS?

• It’s common to track NPS on a quarterly basis to monitor trends over time and assess the impact of recent product changes or updates.

Conclusion

Net Promoter Score (NPS) is a useful tool for understanding overall customer satisfaction and loyalty. While it is easy to implement and provides a simple metric for benchmarking, it is essential to recognize its limitations. Product managers should use NPS as part of a broader strategy that includes additional metrics and qualitative data to make informed decisions about product improvements and customer experience .