What is the NPS?
How do we decide where to go shopping, which online store to use, where’s best to buy the equipment we need for our vacation, or which insurance company to choose? These decisions often depend on the advice we receive from our friends, family, neighbors or work colleagues, but of course this isn’t the only thing that matters. In particular, the decision as to whether we’ll remain a long-term customer instead of treating this as a one-off experience is influenced by many other factors. However, the response to the following question is of crucial importance if one is to gain new customers: Would your current customers recommend your company to a friend?
This question essentially forms the basis for the Net Promoter Score (NPS), a metric that measures a company’s potential to gain and retain customers. Surveys are used to ask customers (on a scale of 0 to 10) how likely it is that they’d recommend a product or service to a friend or colleague.
The survey is then able to divide customers into three categories:
- ”Promoters” (9-10 points) who actively recommend the product/service and thereby contribute to customer acquisition.
- “Passives” (7-8 points) who are satisfied but don’t actively recommend the product/service.
- “Detractors” (0-6 points) who are dissatisfied, don’t recommend the product/service, and maybe even advise against buying or using it.
The actual NPS is calculated by using the difference between the share of Promoters and the share of Detractors (the percentage of low scorers is subtracted from the percentage of high scorers, thereby providing values from -100 to +100).
Who invented the NPS?
The idea of the Net Promoter Score stems from Fred Reichheld, a partner at Bain & Company who developed this way of measuring customer satisfaction in the 1990s. A study he conducted concluded that companies with higher levels of customer loyalty are particularly successful in the longer term. The NPS was presented for the first time in 2003 in an article in Harvard Business Review, and since then has evolved into one of the most frequently used metrics to assess customer satisfaction and loyalty.
The potential to comprehensively measure customer centricity
The main advantage of the NPS is its simplicity. Nevertheless, the question about recommendation doesn’t actually tell you how customer-centric a company truly is: it can only claim to be customer-centered if the entire way in which it’s organized is geared towards its customers.
Based upon the logic that underlies the NPS, Customer Metrics AG has developed a new and empirically derived way of measuring this aspect: the Customer Centricity Hub (CC-Hub) provides you with a 360 degree overview of how customer-centric your company is. The Customer Impact Score (CI-Score) is one of two measurements that are shown in the CC-Hub. It measures customer centricity from the perspective of your customers and uses seven stages to reveal how well developed it is:
The counterpart to this is the Customer Centricity Score (CC-Score) which measures how customer-centered a company is from the internal perspective of its employees.
So what’s the situation when it comes to customer centricity within your company? Do you know how customer-centered you are in the eyes of your customers and employees? Contact us today and we’ll be happy to support you in holistically measuring your customer centricity and suggesting some individual initiatives to improve your profile.