The pros and cons of using NPS
If you’re in business, we’re sure you would have come across the term NPS. But do you know what it means for your organisation? We thought we’d give you an overview of what an NPS score is, what it does, and why so many businesses rely on it for measuring their client's satisfaction. To broaden your horizon, we’re also going to cover why NPS is a poor system to use and why using a more expansive feedback system is better for gaining real insights on what a customer loved, and didn't like, about the service or product you provided. Without further ado, let’s dive deep into all things NPS!
What is an NPS score?
NPS (Net Promoter Score) is widely-recognised as the gold standard customer experience metric. It was conceptualised by Bain and Company in 2003 and is now utilised across the world by millions of businesses to quantify and measure customer sentiment. It typically boils down to one question: How likely are you to recommend [X] product/service/company to a friend, colleague, or family member? From this question, respondents give a rating between 0 (not likely) and 10 (highly likely) which will categorise them into one of the three categories that are the foundation of an NPS score. These categories are:
- Detractors (score 0-6): These customers are dissatisfied with the product or service provided, won’t make any repeat purchases, and can damage your brand image and put a halt on business growth through negative word-of-mouth. They won’t promote the business and might actively dissuade people from using these services.
- Passives (score 7-8): These customers are satisfied with the product or service provided, but aren’t particularly obsessed with your brand and could be swayed by other competitive offerings. These customers are unlikely to promote or dissuade future business.
- Promoters (score 9-10): These customers are loyal enthusiasts who will continue to purchase from your brand and will refer others by spreading the word about their great experience.
From the above categories, you can calculate your final NPS score by subtracting the percentage of Detractors from the percentage of Promoters. As an example, if 20% of respondents fall into the Detractor category, 30% are Passives, and 50% are Promoters, your overall NPS score would be 50 - 20 = 30.
So what does this number really tell you? An NPS score essentially informs you of the percentage of your customers who are active promoters of your brand. Businesses often benchmark their performance over time, with the aim of growing their number of promoters. They also set benchmark KPIs for the business to achieve a certain score. Ultimately, by improving processes, products, and services to increase your NPS, you should increase your number of Promoters, and therefore the number of word of mouth customers you receive.
Pros of using NPS
The NPS system is simple
With one straightforward question asking whether your customers are satisfied enough to recommend your business to others, the NPS system is as simple as it gets. NPS surveys can be used by any business at any time and they don’t require a statistician to administer them. Sending out surveys via email, QR codes, or simply having them on your website will do the trick, and the calculation only requires a basic spreadsheet to ascertain.
The NPS is a helpful management tool
For company executives, gaining a wide overview of customer satisfaction and loyalty is a simple task when employing the NPS system. It’s easy to understand customer sentiment, compare the competition, or compare different departments with NPS. This can help management make decisions to improve the organisation and its functions in a quick glance. After all, for time-poor executives, the increase or decrease of a single number is easy to process.
The NPS is a streamlined process for classifying customers
By viewing the respondents’ rating (from 0-10), they are simply filed into one of the three categories (Promoter, Detractor, or Passive). This streamlined process makes understanding a customer’s level of satisfaction and loyalty clear and offers every employee the same language when referring to customers.
Cons of using NPS
The NPS system isn’t specific
While the NPS system enables you to gain a picture of customer loyalty, it doesn’t point to any reasons why some customers are Detractors or Promoters. Therefore, while the NPS system gives an overview of your satisfied and dissatisfied customers, it does not indicate why your customers feel that way. For businesses looking to improve their score, it can be challenging to hone in on the problem areas that need fixing due to this lack of insight.
The feedback gained is solicited
Of course, with any survey-based system, all of the feedback you receive is solicited which can have negative ramifications. For example, the manner and tone in which a question is asked can bias a respondent’s answer, and the time at which it is asked can also alter people’s answers. Anonymous responses are likely to garner more honest feedback but remove the opportunity to rectify any issues.
The NPS survey means nothing without action
While gaining feedback from an NPS survey can help you understand customer loyalty, that is simply all it can do. If your business has no plan or next steps in this process, the data collected is ultimately meaningless. If your NPS score comes back low, what actions are you going to take to remedy this? Some businesses use their NPS score in their marketing in the hope that this will sway future customers, although there is little evidence to support the effectiveness of this approach.
NPS doesn’t account for the influence of each Promoter/Detractor
Different people have a different level of influence over others - it’s human nature! If you had 90% Promoters and only 10% Detractors, you’d gain an NPS score of 80 which is incredibly high. However, in this scenario, what if that 10% of Detractors were the likes of celebrities who have shared their negative reviews with millions of loyal followers, or what if the Detractor is a key player in the industry…That NPS score completely loses its meaning. Essentially, an NPS score may not give you a full view of the influence of your respondents which could have negative ramifications for your business down the track.
Is NPS an outdated system?
With 19 years of use, the NPS system has grown to be a foundational business metric. However, just because it’s been around for a while doesn’t necessarily mean it’s still relevant and widely applicable. While it is a simple and efficient means of glancing at customer sentiment, it only provides a very broad view. In today’s world, with the push towards customer-centric and deeply personalised business, this broad approach may have lost some of its relevance.
An NPS simply cannot account for human complexity. It assumes that a customer can’t be a Promoter and a Detractor at the same time. It also doesn’t measure the change in sentiment a customer may experience over the lifetime of working with you. In reality, our minds operate on multiple levels, especially when it comes to experiences and emotions. An oversimplified model won’t understand this. For example, in a Harvard Business Review study, it was revealed that 52% of those who actively discouraged others from purchasing from a brand had also recommended that brand. Across the NPS scale, they also found that customers had both actively promoted and criticised the same brand.
The study found that the reason why a customer praised or criticised a business was unrelated to their NPS rating. This is because when offering advice on a product or service customers act like matchmakers and consider whether the specific person and brand are a good fit. For example, someone may recommend a raw vegan cake to their vegan friend but may discourage their non-vegan friends from purchasing it as it doesn’t compare to a dairy-packed cheesecake in terms of flavour and texture and is higher in price.
In addition, while someone may love a certain product from a brand, that’s not to say they adore everything in that range or the ethics and actions of that brand in other areas. NPS also doesn’t account for this with its ‘full-picture’ view.
Ultimately, while it’s simple to ask, analyse, track, and benchmark answers to a single question, it’s unlikely you’ll gain an accurate view of customer sentiment from it, or gain real insights into why that person loves or hates your offering. Understanding and interpreting results from an NPS system may appear straightforward at a glance, but humans are much more nuanced than an answer to one (or a couple of) questions. We believe companies would benefit more from a framework that investigates customers’ behaviour with actionable steps to take post-review. This way, any data gathered will be used to improve customer experience going forward and won’t just be left sitting in a spreadsheet. That’s what Review Tui is all about - gathering meaningful data that tells a story and informs business decisions for the betterment of your customers and your business. Want to learn more about what we do, what we stand for, and how we can help your business? Simply click on the button below to explore our features and take the next step in reimagining your customers’ reviews.