Net Promoter System (NPS)

What is the Net Promoter System (NPS)?

The Net Promoter System (NPS) is a customer loyalty metric that measures how likely customers are to recommend a product or service. NPS is determined by asking customers, on a scale of 0 to 10, how likely they are to recommend the product. Based on their responses, customers are categorized into Promoters (9-10), Passives (7-8), and Detractors (0-6). The NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters, resulting in a score between -100 and 100.

When is NPS Used?

NPS is used to measure customer satisfaction and loyalty at different stages of the customer journey. It's often deployed:

• After a customer interaction: Following a purchase or customer support call to gauge customer sentiment.
• Periodically: To track overall trends in customer satisfaction over time.
• To benchmark performance: Companies use NPS to compare their customer satisfaction levels against competitors.

NPS is valuable in identifying long-term customer loyalty and predicting potential word-of-mouth growth.

Pros of the Net Promoter System (NPS)

• Simplicity: NPS is straightforward, requiring only a single question to gauge customer sentiment.
• Benchmarking: The NPS score can be compared across different industries and timeframes to understand relative customer loyalty.
• Early Warning System: A drop in NPS can be an early indicator of deeper problems with customer satisfaction, allowing for proactive action.
• Customer-Centric: It focuses on how customers feel about a product, directly aligning with customer loyalty and satisfaction.

Cons of the Net Promoter System (NPS)

• Lack of Depth: NPS is based on a single question and doesn't provide insights into why customers feel a certain way, requiring follow-up for actionable insights.
• Cultural Bias: Customers from different cultures or regions may respond differently to the same product experience, leading to variations that aren't always reflective of actual loyalty.
• Skewed Data: Passives (7-8 scores) don’t affect the NPS score, but they might still be important customers whose feedback is neglected in this system.

How is NPS Useful for Product Managers?

For product managers, NPS is a valuable tool to:

• Track Product Health: Regularly measuring NPS helps product managers monitor customer sentiment over time.
• Prioritize Product Improvements: A declining NPS can point to areas that need improvement or issues that need immediate attention.
• Validate New Features: After launching new features, product managers can use NPS to measure how these changes impact customer loyalty.
• Customer Segmentation: By understanding who the promoters and detractors are, product managers can tailor features or services for these different groups to maximize engagement and retention.

When Should NPS Not Be Used?

While NPS is widely used, it may not be appropriate in every situation:

• For In-Depth Feedback: Since NPS only measures likelihood to recommend, it is not suitable when more detailed feedback is needed about specific features or areas of concern.
• In Highly Complex Products: For products with multiple touchpoints or complex user journeys, a single NPS score may not capture the full customer experience.
• For Immediate Decision-Making: NPS scores are more of a long-term indicator and may not be useful for making short-term tactical decisions.

Other Key Questions for Product Managers

1. How can you complement NPS with other metrics?

   • Combine NPS with Customer Satisfaction (CSAT) or Customer Effort Score (CES) to gain a fuller understanding of customer experience. NPS gives a high-level view, but CSAT or CES can provide more actionable details.

2. How often should you measure NPS?

   • Ideally, NPS should be measured regularly (e.g., quarterly) to track trends over time. However, it can also be used after key customer interactions, such as after purchasing or using a new feature.

3. What should you do when NPS declines?

   • A drop in NPS should trigger further investigation. Conduct follow-up surveys or customer interviews to understand the reasons behind the decline and take corrective actions to improve the product.

By incorporating the Net Promoter System (NPS) into their strategic planning, product managers can align their product development efforts with customer loyalty and long-term success.