Very few companies can survive on the market in the long term if they are only designed for quick turnover. In today’s world, factors such as customer satisfaction and customer loyalty play an important role in the success of a company. It is therefore extremely important to keep these two factors in mind. In order to be able to measure this, the Net Promoter Score – or NPS for short – is used primarily in marketing .
Definition of NPS – what does this abbreviation stand for?
According to abbreviationfinder, NPS is short for Net Promoter Score . The NPS is a key figure , also known as a benchmark , which gives you, as an entrepreneur, information about the satisfaction and loyalty of your customers. Would your customers recommend you as a company, your products or services? Do they stay with you as a customer after a purchase? Important factors that are crucial to your long-term success as an entrepreneur. It is recommended that you use this method especially in the field of online marketing .
Customer loyalty cheaper than customer acquisition
You can also save a lot of money in the long term with the NPS benchmark. Customer loyalty is much cheaper in the long run than is the case with new customer acquisition. And you can also increase your sales. There are studies that show that an increase in customer loyalty of around 5 percent can lead to a profit increase of 25 percent to a maximum of 95 percent.
Obtaining customers is certainly an important goal in your company for you too. But that doesn’t mean that you can neglect your existing customers. Therefore, with the help of the NPS, you always have to keep an eye on which and how many customers there are who are at risk of losing them.
Difference Between Net Promoter Score and Net Promoter System
Net Promoter Score and Net Promoter System should not be confused with one another. The system can definitely see this as an extension to the score. The Net Promoter System has the advantage that certain change processes can be initiated in your company based on the Net Promoter Score. You can use it to achieve certain results :
- You can find out bad reviews. You can then get in touch with the author of a bad review and eliminate possible reasons for the negative review.
- You have the option of including certain promoters in a product development process. You benefit from their positive attitude towards your company and your products.
- With the Net Promoter Score you can identify very detailed improvement measures in a functioning Net Promoter System. Customer orientation requires constant improvement and with the appropriate measures you can implement this together with the entire management team.
The history of the Net Promoter Score
In 2003 the Net Promoter Score was introduced by Fred Reichheld together with Satmetrix Systems Inc. and Bain & Company. After the introduction, Reichheld also devoted himself to various studies to create a connection between corporate success and NPS and to determine the corresponding values for a benchmark. He carried out an empirical study in over 30 industries. Nevertheless, it should be noted that the results cannot be fundamentally transferred to German companies. This is because the research was carried out exclusively in the US and the UK.
What does the NPS say?
The NPS gives you the opportunity to show you how likely it is that your customers will recommend you to others . This can refer to the company itself, but also to your products or services. However, the Net Promoter System generally assumes that a recommendation is always closely linked to the factors of customer loyalty and customer satisfaction. For this reason, the Net Promoter Score also ensures that these two variables are also mapped directly.
You can also see the Net Promoter Score as a key figure that indirectly predicts the potential growth of your company . Because the growth of a company is of course closely linked to customer loyalty, customer satisfaction and the willingness of customers to recommend them. There are several studies by Fred Reichhald, who is considered to be the initiator of the NPS, which show that there is a positive correlation between the growth of the company and the NPS.
What does customer loyalty actually mean?
The term customer loyalty is often used as a synonym for customer loyalty, customer loyalty and customer satisfaction . All of these terms are of course very important when it comes to the company’s success in the marketplace. But customer satisfaction and customer loyalty must be viewed from two different dimensions.
If you take a close look at this scheme, you will derive the following from it:
- High customer loyalty means that certain products or services are almost always or very often bought from you by customers
- For customer satisfaction, however, customer loyalty is not the only and also not the right indicator. For example, through a subscription or other contracts, you can have customers who are not satisfied.
- You can only achieve good customer loyalty if you manage to create high customer satisfaction as well as high customer loyalty . If you can create this state of affairs, then these customers develop an emotional bond with your brand with their loyalty, which is very positive.
What categories is the NPS divided into?
In order to make a calculation of the NPS possible, the customers must first be divided into the three categories . These customers are the promoters, the passively satisfied and the critics. When it comes to marketing measures, the individual groups can also be addressed differently. Depending on who belongs to which category. With this division into the three categories, you can better decide for yourself which group you want to concentrate on the most. But what are the characteristics of these individual categories?
- This category includes all those people who would assign a 9 to 10 on the probability scale. The promoters are characterized by their enthusiasm for your products or services. You are definitely to be counted among those who recommend you to friends, acquaintances or other people. As a rule, there are loyal regular buyers among the promoters. This group is particularly important for your company.
- The intention to recommend people in this category is between a 7 or 8. Basically, they are satisfied with your product or service and have no reason to complain. But you also have to include them in the group that could switch to the competition for no particular reason. While they won’t leave negative comments about your products or services, the likelihood of recommending them isn’t particularly high either. This is also the reason why you do not include this category in the calculation of your NPS.
- This group of people will get a maximum of 6 on the NPS scale. As a rule, the points are still below this value. This means that they are neither satisfied with your service or your product, nor can they expect another purchase from you. For you, there is even a risk that people in this category will talk badly about your company. You could even cause lasting damage to your company.
How is the Net Promoter Score calculated correctly?
To calculate the Net Promoter Score, you need to do the following :
- First you have to add up the relative frequencies of the promoters. So from the people who gave a 9 or even 10 for a recommendation.
- In the next step you add up the ratings of the critics. This applies to all the ratings that were given with a 6 or lower.
- The ratings of those who are passive are not included in this calculation.
These steps result in a formula for calculating the NPS. This is:
% Promoters -% Critics = Net Promoter Score
This formula can give you both a negative and a positive result. The value can therefore be between + 100 percent (if you only have promoters) and – 100 percent (if you only have critics). The greater this value, the better it is for you and your company.
Correctly evaluate the Net Promoter Score
For example, if you get an NPS benchmark of + 75%, this does not mean that everything is good. The value of the score alone does not say too much. The task now for you is to compare this value with previous values and also with values from your competitors . But it should also be mentioned that even with these comparisons there is still a lot of room for interpretation. This means that there may be fluctuations in the results, for example, due to the period of the surveys carried out. In addition, you also have to take into account differences between gender and culture, because here too different evaluations can result.