NPS Index: What It Is and Why You Need It

Consumer loyalty began to be measured using the NPS indicator in 2003. Business strategist Fred Reicheld presented his author's methodology for measuring satisfaction in the Harvard Business Review magazine. He suggested entrepreneurs to communicate more with their customers and, after placing an order and returning the goods, ask if they are ready to recommend the brand and products to their friends.\nSuch a survey takes no more than a minute, but gives an idea of ​​how much the customer liked the service. Therefore, such a survey can be conducted on any sales channel: ask the customer live at the cash register, clarify by phone, etc.\nIn order to analyze the mood of the customer base in general, the author of the methodology suggested evaluating the customer's answer on a ten-point scale. Then all consumers can be divided into three groups:\n\n✔ those who scored 0 to 6 points are dissatisfied people who are critics of the brand;\n✔ those who scored 7 and 8 are neutral customers who were generally satisfied, but on their recommendation it is unlikely that anyone will come;\n✔ customers who rated the likelihood of recommendations at 9 or 10 are true brand advocates who are ready to advertise for free his.‍\n\nThe more supporters of the company among its customers, the more competitive it can be considered. Therefore, the author of the method advises to calculate the ratio of positively disposed customers to the total number of respondents. However, since the company has a share of unsatisfied customers, its competitiveness cannot be evaluated without taking into account these customers.\n\nThe formula for calculating NPS is modified:\nProportion of customers who are fans of the brand - share of customers who are critics\nFor example, the company introduced a new service system and after implementation decided to survey customers. It turned out that out of 100 respondents, 10 people rated it less than 6, and another 40 people highly rated the new service. It turns out that the share of critics is 10%, and the share of satisfied customers is 40%. The calculation of NPS is as follows: 40% - 10% = 30%. This indicator is considered satisfactory, but the company is recommended to work with its increase to 50%. After all, it has already been proven that companies with an NPS of 50% and above demonstrate the highest rates of development.\n\nHowever, NPS is not an indicator that can be used to form far-reaching strategies. After all, values ​​can vary in different industries. For example, in general, in industries, you can single out the leaders according to the NPS indicator - these are specialized stores. And companies that provide Internet, mobile communication, cable television, on average, have an NPS below 10%. Therefore, you should focus not on average standards, but only on competitors from your industry and your region.

✔ to what extent the company's indicator differs from competitors. If it's higher, it's a normal and good score by default, even if it falls short of industry averages;\n✔ whether there is an increase in NPS. Ideally, with each subsequent survey, the percentage of satisfied customers should increase and the overall share of NPS should increase;\n✔ whether the NPS is above zero. Even if competitors score even lower, companies still need to work on increasing NPS.

Some companies have already tried to implement NPS in their marketing and sales departments, but even after several months of regular calculations, they did not see a jump in sales. The problem lies in incorrect measurement and analysis. By itself, the value of customer loyalty does not lead to an increase in profits. It is much more important to compare the current value of NPS with similar indicators of previous periods. If it increases, the company modernizes sales processes, service, and the products themselves.\nHowever, the use of NPS is complicated by the choice of interval for measuring the indicator. For example, online stores can be asked for the customer's opinion after each purchase, and the less time that has passed from the order to the question of recommendations, the higher the probability of a response and a repeat request. If asked within 48 hours after ordering or receiving the product, the customer will respond and share their impressions. If you delay the question for two weeks, then the impression of the order will not be so vivid and the customer may either not answer at all, or give a neutral rating instead of a high one.\nIn addition, the interval of surveys may be related to the duration of the development of a new product. For example, the company surveyed customers and found out that a large proportion is not ready to recommend the product because its quality is unsatisfactory. Then the manufacturing or procurement process made changes to improve the product's performance. After launching an improved version of the product, customers should be re-surveyed to see if satisfaction has been improved.\nAnother reason for NPS failure is the insufficient size of the customer base. New companies with rare customers will have to wait a long time before accumulating enough information and statistics. This means that until the required amount of data is collected, the company will not be able to launch new surveys.

But if you conduct surveys regularly, you can identify groups of customers who:\n\n✔ can at any moment abandon the company's goods and services and go to competitors because they have offered discounts or gifts. Usually these are customers who scored 7-8 points during the NPS survey;\n✔ know what needs to be improved in the company's work. These are people who scored less than 6 points.‍\n\nIn order to increase the effect of using NPS in business, other metrics can be calculated. For example, CRR is the retention rate. With the help of CRR, you can find out how many customers remained loyal to the company for a certain period. CRR is usually measured over a month, quarter or year.

In order for NPS to work for the benefit of the business, it is necessary to remember some rules for calculating this indicator. First, you need to interview all customers, otherwise you can't trust statistical data. For example, the company uses a loyalty system, that is, some consumers have store cards. If management surveys only cardholders, the NPS will be inflated. After all, the very fact of readiness to purchase a regular customer card indicates that the client was satisfied with the service.\n\nSecondly, feedback should be collected immediately after receiving the customer experience. But it is advisable to think in advance how often you can interview the same person. It is best to focus on the average period of cooperation with the buyer. For example, a real estate agency works with two types of clients: tenants and buyers of apartments in new buildings. The life cycle of such customers will differ, therefore, the frequency of the survey will also be different. It is enough to ask a daily renter once about his impressions of working with an agent. You can request feedback from the real estate buyer first immediately after signing the apartment purchase contract, and then contact him annually. During this time, he will form an impression of the residential complex, the work of communal services, and the infrastructure of the district. If the impression is negative, then the apartment owner subconsciously blames the realtor, because he recommended real estate in a bad area.

In addition, the decision to buy from B2B is made collectively. Therefore, when working with corporate clients, only interviews should be conducted. Then the manager will understand who answers to him: the head of the business, the head of the department, an engineer or another full-time specialist. The higher the position of the interlocutor in the company, the better for NPS calculation.\n\nThere are three rules for conducting a survey:\n✔ its duration should exceed 10 minutes, because not all corporate clients are ready to spend more time on a survey in which they are interested, but the seller;\n✔ You only need to ask about the readiness of a recommendation. During the survey, the seller will have a desire to find out everything - his opinion about the product, information about competitors' offers. But if a question about NPS gets lost in the flow of questions, the answer to it will be biased;\n✔ it is necessary to ask only open questions that cannot be answered simply. Promoters and critics of the brand willingly give detailed answers. And neutral buyers are not interested in sharing their opinion. Closed questions provoke a simple answer. That is, the company will not have detailed information on which to rely.​​\n\nIt has been noticed that representatives of small and medium-sized businesses are more willing to share their opinion. That is, when working with large customers, it is necessary to stimulate the conversation of buyers.

The method of measuring customer loyalty has its advantages and disadvantages. The main advantages include:\n\n✔ ease of use. The metric is intuitive even for entrepreneurs who have never used it. The results of the measurements are easy to interpret, and the interpretation will be unambiguous due to the evaluation system. This means that working with NPS is convenient in terms of dynamics, comparing estimates for different periods with each other;\n✔ cost-effectiveness. Calculating a brand loyalty index does not require a large investment. Most of the surveys are conducted using email services or phone calls. If you need to interview a large number of customers, you can create an anonymous questionnaire in Google forms. Then you will have to spend on the analysis of the results;\n✔ the possibility of using metrics for the entire company, as well as divisions and branches. For example, a sales manager may request feedback from a customer only about their interaction with the salesperson. Then check whether you liked the delivery. And the data will be sent to different departments. If the company has several branches, the customer's rating will apply only to the branch where he made the purchase. Then the estimates from different points can be compared. \n✔ This is how the manager adjusts the work of the lagging store;\n✔ the speed of obtaining results. The general results of the survey can be collected in a special system or CRM.

First, the indicator is unstable. This happens if the selection of customers is not done correctly. For example, only loyal consumers who have been shopping for a long time are selected. Or only lost customers are surveyed some time after they leave. Then the estimate turns out to be either too high or objectively low.\n\nSecondly, companies unconsciously make mistakes when conducting research. For example:\n✔ the analyst takes into account the "don't know" answers in the table. As a rule, such a situation arises if buyers are dissatisfied with the company's work, but do not want to go into details and analyze what exactly they did not like. In this case, they absolve themselves of responsibility, preferring to answer vaguely, but compensate for this with a higher grade. In order to get an objective picture, it is better not to take the "I don't know" answers into account at all;\n✔ managers ask a direct question: "Would you recommend the company to a friend?" This wording forces the client to answer positively so as not to offend the person asking. Due to the war, the ratings become biased;\n✔ questionnaire developers visually divide the ratings, unconsciously telling customers which option is better. For example, a customer is given a rating scale, with 8 being a neutral gray and 9 and 10 being bright green. In this case, the number of positive responses increases.

The consumer loyalty index is actively used in countries. NPS data of major brands is publicly available on special sites. There is no single base in Ukraine. This suggests that in our country, the metric is not the main indicator that characterizes the company's success.\nHowever, in practice, even if NPS data is not publicly available, this does not mean that brands do not measure it. Firms that work in the field of service, insurance, banking services, hotel and restaurant business, as well as air and rail transportation are especially interested in the metric. Even the authors of the methodology themselves admit that the NPS index in Ukraine is on average higher by industry than in Western countries. Ukrainian consumers are not spoiled by the high quality of service, so they respond positively to any attempts by the business to become better.

The NPS system is necessary to reduce the number of critics of the brand and increase the number of its supporters. Even if the share of satisfied customers increases by 5% and they make a repeat purchase, the profit will increase by 25% due to the revenue from the repeat sale and no additional advertising costs. At the same time, loyal customers return again and again, which as a result increases profits even more.

Big business NPS needs to maintain its market share. Even such giants as Apple, Sony, and P&G measure the indicator. The NPS indicator is the basis of the philosophy of brands. All their work is aimed at meeting the needs of users and building long-term relationships with them. For example, a customer buys a product and at the checkout evaluates his willingness to recommend the brand. If he gives a low rating, the feedback is given to the manager. He calls the dissatisfied customer back within a day and solves his problem. As a result, such a customer becomes permanent and in the future is more loyal to the "mistakes" of the company.\n\nThere are several reasons to start measuring NPS now:\n✔ regular measurements show what the company needs to do to improve the business. There are no perfect sellers and manufacturers, but it is difficult to find objective criticism among voluntary reviews. To understand the attitude of users to the company, you need to ask about it directly. After the NPS assessment, managers should have a specific action plan to deal with negative feedback. Thanks to the work on errors, it is possible to return even those buyers who left before the survey was conducted. And with those that already exist, it will allow to continue relations;\n✔ thanks to the measurement of the indicator, small and medium-sized businesses stay on the market. Many small businesses have larger competitors. For example, a local chain of grocery stores competes with federal chains of hypermarkets. In such a struggle, it is impossible to use dumping due to a lack of resources. That is, for business development, it is necessary to invest not in attracting new customers, but in maintaining old ones. NPS can increase the number of repeat transactions. In such a competitive struggle, small and medium-sized businesses have advantages compared to large chains. Small companies are more flexible, that is, they can introduce changes in the service process for the sake of one dissatisfied customer. Large companies will need large investments to modernize the service. And the process itself will be able to start only if complaints from consumers are massive.

By itself, the NPS measurement will not lead the company to success if it changes its customer interaction strategy. Conducting a survey requires resources: it is necessary to first organize research (make a mailing list, set up an automatic callback to the customer base, place survey buttons at the cash register), then analyze a large volume of data. That is, you should invest in NPS analysis only if there are resources for further business improvement.\n\nFirst of all, for management, you should use those customers who have given high ratings and are ready to recommend the company to their friends. After all, according to statistics, almost 85% of buyers attach great importance to the reviews of people they know personally. To do this, you can offer customers to recommend products, for example, refer a friend, post a review on social networks, record a video. For this, the buyer needs to be encouraged - with a discount, bonus, exclusive materials.

Then you need to contact the critics to find out the reason for their dissatisfaction. It is important to convey the received feedback to the employees who work in the business process. For example, if the customer does not like the quality of the product, then this information must be transferred to the development or production department. If you work out the dissatisfaction of the buyer, show that his opinion is important, almost 70% of critical customers will be ready to cooperate further. Gradually, they will move into the category of neutral or loyal.

To increase the level of satisfaction, it is important to work individually with each segment of consumers. But there are general recommendations that will help increase NPS.\nFor example, you can use the promotion technique. Knowing your NPS will allow you to calculate how many new customers will come from referrals. As you know, "word of mouth" is the most budget-friendly and effective way to attract customers.\nAlso, NPS can be used as a KPI for those divisions that work with customers. Because even if a company has a profit plan, it does not guarantee that it will grow. Somehow the opinion of users about the brand may change and the income will suddenly drop.