What is NPS?
Back in December 2003, business strategist Frederick Reichheld published an article in the Harvard Business Review entitled The One Number You Need to Grow. The article introduced the concept of the Net Promoter Score (NPS) and gave way to how many companies, now including the likes of Siemens, Philips, GE, Apple Retail, American Express, along with two-thirds of the Fortune 1000, measure their brand value. More specifically, NPS gauges the loyalty of a brands’ customer relationships and the extent to which customers would recommend their company, products or services to others. The research showed that there’s a strong correlation between a company’s growth rate and the percentage of customers who are “promoters” i.e. those who are extremely likely to recommend them company to a friend or colleague. His idea was that previous models that look at things like growth in market share, customer satisfaction surveys or complex financial analysis have proven to excessively and unnecessarily complicated, whereas a simple model like the NPS serves as a more effective indicator of future success. In the article, Reichheld writes “The path to sustainable, profitable growth begins with creating more promoters and fewer detractors and making your net-promoter number transparent throughout your organization. This number is the one number you need to grow. It’s that simple and that profound.” It’s been over 15 years since the article was published and NPS is now as relevant as it has ever been.
How does it work?
The basic idea is that companies that are loved by their customers, so much that they would happily recommend them, are more likely to grow. NPS starts by asking two simple questions: 1) On a 0-10 scale, how likely is it that would recommend our product, service or company to a friend or colleague?, and 2) What is the primary reason for your score?
The results were benchmarked and three categories arose: 1) Promoters: Those that gave a score or 9 or 10 were considered “promoters” in that the product or service enriched they’re lives so much that they would continue buying the product or service and willingly recommend it to others. 2) Passives: Those that gave a score of 7 or 8 were considered “passives” in that they get what they need from the product or service, but no more and, in-turn, made few referrals. 3) Detractors: Those that gave a score from 0-6 were considered “detractors“, customers who had a negative experience, are costly to serve and likely to switch to seek an alternative provider. Simply subtracting the percentage of detractors from the percentage of promotors reveals the NPS score, which signals a real measure of satisfaction and growth potential. Reichheld points out three implementation guidelines. The first is that the results should be transparent and regularly communicated so that your teams can focus on improving their results. Secondly, organizations should apply the feedback towards daily operations and improvement processes. Lastly, CEOs and leaders should make improving the NPS a high priority and mission critical success metric.
Context and Timing Matters
An important benefit to NPS is its simplicity and versatility. It’s simple in that it is based on your customers’ intuitive sentiment, leaving little room for too much deliberation or bias. It’s easy to ask and easy to answer. It’s universally applicable allowing you to effectively benchmark against others in your industry. NPS is also versatile in that it can be used in a variety of contexts such as your overall customers’ attitude towards your brand, their satisfaction with your support organization, or even with your employee’s attitudes towards your own organization. NPS can be used to gauge the satisfaction of any audience.
Where does Customer Relationship Management (CRM) play into NPS?
CRM plays into NPS in a couple of important ways. Firstly, companies using a CRM are more likely to deliver a better customer experience. The reasons for that are many. CRM gives everyone in your organization a complete picture of your customers. That means that whenever a customer reaches out with an inquiry, question or request, anyone and everyone within your organizations can serve that customer with full knowledge of the customer profile, relationship, and recent activity with your company. This makes for a more efficient process whereby customers don’t have to repeat themselves or bring their service representative “up-to-speed” with each interaction. Instead they will feel understood and come away feeling that they are dealing with a highly professional sales or service organization.
Another way in which CRM plays into NPS is its ability to incorporate the practice into day-to-day operations. An important capability within modern CRM products is the ability to automate customer-centric business processes. As an example, you can automate the sending of an email, let’s say, three days following the date that a customer support case is closed. Then, you can generate a report that displays the results in your dashboard on an ongoing bases. This allows you to conveniently track your NPS as it relates to your customer support organization in the most resources-efficient way possible.
To take it a step further, you can use your CRM reporting to segment NPS scores by a variety of firmographic attributes like company size, industry, type, location, revenue and more. Incorporating NPS into your broader CRM strategy can inform your organization which customers are your promotors and which customers are underserved and may need to be given more attention. It can lead to insights that you would have never otherwise been able to uncover.
NPS is not an influencer of business success, but rather, a strong indicator. Give it a shot! Think about how you can incorporate NPS into your CRM practice to turn more of your detractors into promotors. As it goes for SugarCRM, take a look out our NPS ratings from PC Magazine.