Net Promoter Score

What is the Net Promoter Score?

The Net Promoter Score (NPS) is a measure used in market research to determine the satisfaction and loyalty of customers towards a company. Developed by Satmetrix Systems, Bain & Company and Fred Reichheld in 2003, the NPS uses a simple survey that asks customers how likely they are to recommend the company or its products to others. The response scale ranges from 0 to 10, and respondents are categorized into three groups depending on their rating: Promoters, Passives and Detractors.

Calculation method

To calculate the NPS, the percentage of detractors is subtracted from the percentage of promoters. The result can be between -100 and 100. A positive NPS value means that there are more promoters than detractors, which indicates higher customer satisfaction and loyalty. This metric is a quick way to get useful feedback that companies can use to optimize their service quality and address any issues from the customer's perspective.

Objectives and benefits of the NPS

The primary purpose of the NPS is to provide a quick and effective overview of customer loyalty. This metric is particularly valuable for companies that not only want to measure current customer satisfaction, but also want to assess their customers' willingness to recommend the company to others. By using the NPS, companies can identify weak points in the customer experience and take targeted measures to improve customer loyalty. This direct link from feedback to action offers companies the opportunity to continuously optimize their services and positively differentiate themselves from competitors.

Advantages of the application

The main Advantages of the NPS its simplicity and the ability to be used as a Benchmarking-tool in a competitive environment. Companies can compare their results with industry standards and thus better understand where they stand in comparison to their competitors. A high NPS indicates a solid customer base with a high recommendation rate, which in turn can be seen as an indicator for future growth. The NPS also helps to close the feedback loop: companies receive valuable data on which aspects of their products or services should be improved in order to further increase customer satisfaction.

History and application of the NPS

The Net Promoter Score was developed in 2003 by Satmetrix Systems, Bain & Company and Fred Reichheld. The introduction of NPS marked a new era in capturing customer feedback, as it provided a simplified yet effective way to measure customer loyalty. Instead of elaborate surveys and sophisticated analysis, the NPS relies on a minimalist method: a single question that provides deep insights into customers' willingness to recommend a company. This concept quickly gained worldwide recognition and was adopted by a large number of companies who used it as a simple tool to evaluate customer behavior.

Practical application of the NPS

In practice, the NPS helps companies to gain insights into customer satisfaction levels and support strategic decisions. Especially in industries where customer experience and recommendations are crucial, such as retail and the service industry, the NPS is considered a standard metric. Companies use the NPS to segment customers and develop targeted marketing strategies. The higher the score, the greater the likelihood that the company will be perceived in a positive light, which can lead to lower marketing costs and higher sales. The simple implementation and evaluation of the NPS makes it a favored tool in market research.

Criticism and limits of the NPS

The Net Promoter Score is also criticized despite its popularity. A frequently cited weakness is its one-sided reliance on a single question, which does not provide a comprehensive insight into the reasons for customer satisfaction or dissatisfaction. This simplification may not adequately reflect the complexity of customer relationships and overlook important details. Without additional qualitative questions, it remains unclear why customers have become detractors or promoters, which reduces the ability to target problems or reinforce strengths.

Limits in the application

Another point is the cultural variability of the NPS. What is perceived as a good or bad rating in one culture may be completely different in another, making it difficult to compare across national borders. In addition, the predetermined categories of promoters, passives and detractors often ignore gradual nuances in customer satisfaction that could also be relevant. Finally, the exclusive focus on NPS could lead companies to neglect important processes that are not directly related to the score but are critical to the overall customer experience.

Good NPS values in comparison

An NPS value above 0 indicates that a company has more satisfied customers who recommend it to others than dissatisfied customers. This is considered a positive indicator of customer satisfaction. However, expectations of "good" NPS values vary considerably across industries. A score above 50 is often considered very good and indicates strong customer loyalty, while scores above 70 are considered excellent - a clear mark of outstanding customer service and product quality. However, these scores are highly dependent on the industry, the specific product or service and even the regional market mentality, so it is important to consider these against industry-specific standards and local expectations.

Comparison and interpretation

The value of the NPS score is often derived from a comparison with competitors in the same industry. If a company scores an NPS of 30 in an industry where low NPS scores are common, this may be more positive than an NPS of 60 in a market segment where higher than average scores are the norm. It is therefore crucial for companies to interpret NPS in the context of market and industry positioning. Even regional differences can be critical to understanding how best to use NPS strategically to overcome hurdles and capitalize on opportunities.

Alternative methods for measuring customer satisfaction

The Customer Satisfaction Score (CSAT) is one of the most common alternatives to the NPS and measures customer satisfaction with a specific product or service. In this method, customers are asked to rate their experience on a scale that can vary depending on the company, but often ranges from 1 to 5. The CSAT is particularly useful when companies want to gather specific feedback on certain interactions or product features. This targeted feedback makes it possible to make more precise adjustments based on specific customer experiences.

Customer Effort Score (CES)

Another alternative measurement method is the Customer Effort Score (CES), which focuses on the effort that customers have to make to solve a problem or complete an interaction. This key figure is designed to identify and reduce barriers in the customer experience. A low CES score indicates that customer processes are smooth and efficient, which in turn can lead to higher satisfaction and loyalty. The CES complements the NPS and CSAT by broadening the perspective to focus on the ease of the customer experience.

Things Gone Wrong (TGW)

In the context of the Lean Six Sigma approach, the Things Gone Wrong (TGW) score is used, which specifically measures the number and type of customer complaints. TGW provides a data-supported basis for process improvement by showing where systematic errors or weaknesses lie in the service process. This method is particularly popular in production and quality management environments, as it enables targeted optimization and thus contributes to a sustainable improvement in customer satisfaction.