MEASURING AND IMPROVING PERFORMANCE
Net Promoter Score® (NPS) is a market research metric that measures customer satisfaction.
NPS® is a proprietary instrument developed by Fred Reichheld in 2001, who owns the registered NPS trademark with Bain & Company and Satmetrix.
It measures customer experience by asking one simple question: “Using a scale of 0 to 10, how likely is it you would recommend (name of brand) to a friend or colleague?”
Respondents are grouped:
In the illustration, a score of 9 to 10 are ‘promoters’, loyal enthusiasts of the brand who will continue to use its products and advocate the brand to others, fuelling revenue growth.
Between 7 and 8 are ‘passives’ who are satisfied with the brand but unenthusiastic about it -and are vulnerable to competitor offerings, posing a risk of defection and loss of revenue.
Those who score of between 0 and 6 are called ‘detractors’, who are unhappy customers who can damage your brand and impede growth through negative word of mouth.
By subtracting the percentage of ‘promoters’ from the percentage of ‘detractors’ yields the ‘NPS®, that can range from a low of minus 100 (if every customer is a ‘detractor’) to a high of plus 100 (if every customer is a ‘promoter’).
Businesses can benchmark themselves against their industry averages to gain further insight.
There is much debate concerning how effective NPS® is as a tool. Because NPS® relies on a single survey item the validity and reliability of any brand’s score depends on collecting many ratings from customers by email and depends on the customer taking the time to open the email and complete the survey.
The NPS® focuses on the two extremes – ’promoters’ and ’detractors’ – who may or may not already be locked into a bank’s business and there may be little that you can do about it. It does not focus on the loyal, but unhappy ‘passives’ who are at the most risk of defection to a competitor.
While NPS® has gained popularity among business executives it has also generated controversy in academic and market research circles, where its claimed reliability as a predictor of market growth is questioned.
The greatest risk to banks is from their ‘neutral’ and passive customers who can account for a significant proportion of their portfolio. They’re still banking with the bank but regret their decision and if given their chance again when opening their bank account they wouldn’t choose the bank.
Many banks undertake attitudinal research besides NPS to understand why this is, but the problem is often emotional – as they feel little or no connection to their bank. Inertia, because of the perceived costs and challenges of switching stops them from acting. Banks can, by being customer-centric and using the techniques discussed in the Customer management modules, re-engage this group of valuable customers.