Net Promoter Score
Can one simple question determine your company�s future?
You may have heard the buzz about Net Promoter Score (NPS), a relatively new formula for measuring customer satisfaction by asking just one question. Living in an era where ease and expediency is king, it�s not surprising that companies large and small are attracted to integrating this metric into their research programs.
What Is It?
Co-developed by Bain & Company loyalty expert Fred Reichheld and Dr. Laura Brooks of Satmetrix Systems, NPS was introduced to the masses in the Harvard Business Review article, �The One Number You Need to Grow� (December 2003). After asking a variety of satisfaction-related questions and comparing results with respondents� subsequent repurchase and referral behavior, Reichheld and Brooks� research concluded that the question that best predicted behavior was, How likely is it that you would recommend Company X to a friend or colleague?
The metric works like this: customers answer the question on a zero-to-ten scale, 9�s and 10�s are classified as �promoters,� 7�s and 8�s as �passives,� and 6�s and below as �detractors�. To calculate the score, you simply subtract the percentage of detractors from the percentage of promoters. (Figure 1.1)
�Promoters are customers who are so enthusiastic about a firm or brand that they not only increase their own purchases, but also refer their colleagues or friends. Passives are satisfied but unenthusiastic customers who can be easily wooed by the competition. Detractors are customers who feel so badly treated that they cut back on purchases, switch to the competition, and warn others to stay away from the company.� (netpromoter.com)
Good Profit vs. Bad Profits
The NPS concept aims at turning a company�s bad profits into good profits. And what exactly are bad profits? Reichheld defines bad profits as �profits earned at the expense of customer relationships.� Basically, the profit is made, but the customer becomes a detractor.
An example of a company generating bad profits would be a hospital not revealing the deals they have with insurance companies, or an airline charging $100 to change a ticket. The idea is that bad profits work their damage through the detractors they produce. Reichheld states, �The only way a company can truly live by the Golden Rule -- treat others as you would like to be treated -- is to avoid bad profits entirely.� (Reichheld, The Ultimate Question, Harvard Business School Publishing Corporation, 2006)
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