what are the benefits of net promoter

8/12/2019 What Are the Benefits of Net Promoter

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What are the benefits of Net Promoter in comparison to

other customer measurements?

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Over the years, companies have developed many different methods for gauging the

attitudes and behaviors of their customers. None of these methods is perfect; all are

simply attempts to gather data that a company can use to improve its products and

processes.

We believe that Net Promoter, as both a specific metric and a full Net Promoter Systemis the most

useful and practical method. Among its primary advantages:

Simplicity.Net Promoter surveys typically require just two or three questions, keeping the burden on

the customer low. Moreover, the key "likelihood to recommend" question is scored on a simple zero-to-

ten scale. There are no complex indices or correlation coefficients. The Net Promoter score is a single

number that can be tracked from week to week and month to month, just like net profit. As with net

profit, of course, a companys Net Promoter scores can be broken down however you wishby

business line, by store, by product, even by individual customer-service rep.

Ease of use.A company can conduct its NPS surveys by phone, e-mail or Webwhichever

generates the best response rates and the most useful data. It can compile and post scores quickly, so

that people can see the results of their performance in a timely fashion. It can share up-to-the-minute

verbatim comments with employees and managers.

Quick follow-up.NPS practitioners typically share customer feedback very quickly after it is received.

They quickly ask managers or frontline employees to contact every customer who gives an unfavorable

score (a detractor), to identify the customers concerns, and to fix the problem whenever possible.

Frontline managers and senior leaders use NPS data and customer comments to inform decisions

about process changes, new products and other innovations.

A growing body of experience.Thousands of companies in many different industries have begun to

measure their Net Promoter scores over the past several years. More important, a growing number of

companies have adopted the full Net Promoter SystemSM. Among the early adopters are corporate

trailblazers such as Apple, Enterprise Rent-A-Car, and Philips. These companies have developed

successful systems based on Net Promoter principles but adapted to their own business. Many

practitioners share their experiences and lessons learned through mechanisms such as the NPS

Loyalty Forum.
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Adaptability.As an open-source methodno high-priced vendors or "black box" statisticians

requiredNPS can easily be put to work in a wide variety of business settings. Apple uses it in its retail

stores, American Express after important servicing calls. Logitech, the computer peripherals

manufacturer, uses the system to assess what customers think of every Logitech product. Charles

Schwab employed Net Promoter Systemas it pursued a turnaround.

Customer-related measurements have a long history, and each has its partisans. But we think no other

method has as many advantages as the Net Promoter System.

How is Net Promoter Score related to growth?

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Bain & Companyresearch has established a strong link between organic growth and a

companys Net Promoter Score relative to the relevant competitors in its industry.

To establish the correlation between relative NPS and growth, Bain teams identified the relevant

competitors in a business and measured the Net Promoter Scores of each competitor using the same

methodology and sampling approach. These relativeNet Promoter Scoreswere then correlated with

organic growth measures. In most industries, NPS explained roughly 20% to 60% of the variation in

organic growth rates among competitors. On average, an industrys NPS leader outgrew its competitors

by a factor greater than two times.
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In other words, a companys NPS is a good indicator of its future growth. But the relationship is stronger

in some industries than in others. Its strongest when:

The industry includes a substantial number of players, so customers have a real choice

Network effects are minimal, so customers can easily switch providers

The industry is mature, with widespread adoption and use of its products or services

Wherever these conditions do not hold, the relationship may be weak or inconclusive.

Other factors may undermine the relationship as well, at least in the near-term. Companies with deep

pockets can open loads of new stores or flood the market with promotions or discounts. Companies with

partial monopolies and companies that dominate distribution channels sometimes grow despite weak Net

Promoter Scores. And technological breakthroughs can create growth surges. But while loyaltyasindicated by high Net Promoter Scoresisnt the only factor determining growth, profitable organic growth

cannot long be sustained without it.

Theres another important caveat to the connection between high Net Promoter Scores and growth: a

high score in and of itself is not the real objective. A high NPS by itself it does not guarantee success.

NPS merely measures the quality of a companys relationships with its current customers, and high-

quality relationships are a necessary but insufficient condition for profitable organic growth.

For example, HomeBanc Mortgage Corporation, which was featured in the first edition of the book, had

the highest NPS among mortgage banks at the time. But it still fell victim to the mortgage meltdown of

2007, which swept HomeBanc and many of its competitors into bankruptcy. A company must build an

army ofloyal customers,as HomeBanc did, but it will squander the potential they create if it cant make

effective decisions about risk, pricing, innovation, cost management and everything else necessary for

sustainable, profitable growth.

Measuring your Net Promoter Score

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Asking the ultimate question allows companies to track promoters and detractors,

producing a clear measure of an organization's performance through its customers'

eyes, its Net Promoter Score. Bain analysis shows that sustained value creators

companies that achieve long-term profitable growthhave Net Promoter Scores (NPS)
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two times higher than the average company. And Net Promoter Systemleaders on

averagegrow at more than twice the rate of competitors.

Net Promoter Systemis based on the fundamental perspective that every company's customers can be

divided into three categories. "Promoters" are loyal enthusiasts who keep buying from a company and

urge their friends to do the same. "Passives" are satisfied but unenthusiastic customers who can be easily

wooed by the competition. And "detractors" are unhappy customers trapped in a bad relationship.

Customers can be categorized based on their answer to the ultimate question.

The best way to gauge the efficiency of a company's growth engine is to take the percentage of

customers who are promoters and subtract the percentage who are detractors. This equation is how we

calculate a Net Promoter Score for a company:

More than a sco re

The score is at the heart of a Net Promoter System, but you cant take action if you dont know why a

customer is or is not "likely to recommend." You should always follow up the Ultimate Question with an

open-ended question: "Why?"

The answers can help transform your organization. To learn how, check out the Closed loop,Learning

andActionprocesses of the Net Promoter System.

While easy to grasp, NPS metric represents a radical change in the way companies manage customer

relationships and organize for growth. Rather than relying on notoriously ineffective customer satisfaction

surveys, companies can use NPS to measure customer relationships as rigorously as they now measure
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profits. What's more, NPS finally enables CEOs to hold employees accountable for treating customers

right. It clarifies the link between the quality of a company's customer relationships and its growth

prospects.

How do companies stack up on this measurement? The average firm sputters along at an NPS efficiency

of only 5 percent to 10 percent. In other words, promoters barely outnumber detractors. Many firmsand

some entire industrieshave negative Net Promoter Scores, which means that they are creating more

detractors than promoters day in and day out. These abysmal Net Promoter Scores explain why so many

companies can't deliver profitable, sustainable growth, no matter how aggressively they spend to acquire

new business. Companies with the most efficient growth enginescompanies such as Amazon,

Rackspace,TD Bank,Harley-Davidson,Charles Schwab,Zappos,Costco,Vanguard,and Delloperate

at NPS efficiency ratings of 50 percent to 80 percent. So even they have room for improvement.

In concept, it's just that simple. But obviously, a lot of hard work is needed to both ask the question in a

manner that provides reliable, timely, and actionable dataand, of course, to learnhow to improve your

Net Promoter Score.

Three types of Net Promoter Scores

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Its not unusual for a company to crow about a high Net Promoter Score. You may

have seen a companymaybe a competitorissue a press release touting a score as

high as 75% or more. Often, the company will compare its Net Promoter Score to

scores we published in The Ultimate Question 2.0.

High Net Promoter Scores are certainly better than low ones. They indicate that a company has earned

more promoters than detractors. But how do we interpret the scores these companies are reporting?

What is a good score? How should we set goals and targets for improvement?

To begin, we should make sure we look at the right sort of Net Promoter Score. Seasoned practitioners of

the Net Promoter System gather feedback from their customers in three different ways:
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Touchpoint. Net Promoter System practitioners ask for feedback from their own customers afterselected touchpoints, experiences or episodes. For example, they might do so after the purchase of a

product or an interaction over the phone. This type of feedback focuses on understanding how

customers experiences at those touchpoints influenced their overall loyalty so you can figure out ways

to improve those experiences.

Relationship. Net Promoter System companies regularly contact a sample of their own customers,

asking them how likely they would be to recommend the company to friends or colleagues, and why.

Feedback like this provides an overall assessment of the relationship between company and customer.

It provides input to account teams, relationship managers and others so they can make decisions and

take actions to improve selling, servicing, product design, pricing or other policies, based on what they

learn.

Competitive benchmark. Finally, leading practitioners of the Net Promoter System sample all target

customers for their products or services. They seek feedback not only from their own customers but

also from their competitors customers. Competitive benchmark Net Promoter Scores provide an

objective and fair basis for comparing your companys feedback to the fe edback your competitors earn.

Done right, they can provide the basis for goal setting and prioritization at the highest levels of a

company.

The competitive benchmark Net Promoter Score is often overlooked or undervalued. Yet it adds an

important level of information the other two are likely to miss. It allows a company to learn what

respondents think about an entire value proposition, not just their relationship with one particular

company.

Touchpoint and relationship Net Promoter Scores fuel continuous improvement. Competitive benchmark

scores inform a different set of decisions. They tell a company how it is doing, not just against direct

competitors but against every competing alternative in the marketplace. That knowledge helps leaders


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know where the major threats and opportunities lie. It helps them determine strategic priorities, such as

where and how aggressively to invest. The feedback can also provide valuable specifics. For example,

you may find that competitor X has suddenly become popular with customers because of a new product

or pricing system. Then you can ask whether it makes sense to try emulating or leapfrogging the

innovation.

Methodology

Competitive benchmark surveys are a form of traditional market research. Researchers, usually from a

third-party firm, ask respondents which companies in a given category they patronize. They ask how likely

the respondents would be to recommend each one, and they probe for the reasons. In most cases, they

gather data about the respondents purchases so theycan estimate their economic value as customers.

They also ask demographic or psychographic questions to locate the respondent in a particular customer

segment. The methodology is almost always double-blind: the respondents dont know which company is

asking the questions, and the customers remain anonymous to the company. As with most market

research, the surveys can take 15 or 20 minutes and are designed to provide true comparisons between

a company and its competitors. A higher score than the competition, even if it seems low in absolute

terms, is a reliable indicator of future growth. The opposite is true as well.

Competitive benchmarking eliminates the responder bias thats likely to crop up when you survey only

your own customers. In your own surveys, people who dont like doing business with you may decide that

it isn't worth their time to participate. With a third party doing the asking, youre equally likely to hear from

everyone on the love-you/hate-you spectrum.

Competitive benchmarking also eliminates the built-in difficulty of comparing absolute Net Promoter

Scores from one geographical region with another. Say your operations in Asia score lower on the NetPromoter zero-to-10 scale than your other operations. A third-party survey will help you establish your

performance relative to other companies operating in the same market, eliminating the worry about

whether Asian customers are less likely to hand out 9s and 10s than customers in other regions. When

you look at your performance relative to competitors in the same market, cultural bias becomes irrelevant

what are the benefits of net promoter

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