What is NPS?

Net Promoter Score (NPS)

Developed in 2003 by Fred Reichheld, a partner at Bain & Company, the Net Promoter Score was designed to be a new way of measuring how well an organisation treats the people whose lives it affects—how well it generates relationships worthy of loyalty. It has become one of the most widely used metrics in businesses today, providing insight into how customers perceive a company and its products or services.

How NPS Works:

NPS is based on a single question: “How likely are you to recommend our company/product/service to a friend or colleague?” Customers respond on a scale of 0 to 10, where 0 means "not at all likely" and 10 means "extremely likely.

Based on their responses, customers are categorised into three groups:

1. Promoters (score 9-10): These are loyal enthusiasts who are likely to keep buying from the company and refer others, driving growth.
2. Passives (score 7-8): These customers are satisfied but not particularly enthusiastic. They are considered vulnerable to competitive offerings.
3. Detractors (score 0-6): These are unhappy customers who are unlikely to recommend the company and could potentially damage the brand through negative word-of-mouth.

The NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters. The score can range from -100 (if every customer is a Detractor) to +100 (if every customer is a Promoter).

How Widely It Is Used:

NPS is one of the most widely used customer loyalty metrics across various industries, from tech companies and retail businesses to financial services and healthcare providers. Companies like Apple, Amazon, and Netflix use NPS as a key performance indicator (KPI) to gauge customer satisfaction and loyalty.

Why Companies See It as Important:

1. Simplicity and Ease of Use: NPS is easy to implement and understand. It distills customer sentiment into a single, actionable metric that can be tracked over time.
2. Predictive Power: NPS is considered a strong predictor of business growth. High NPS scores are often correlated with positive word-of-mouth, repeat purchases, and lower churn rates, making it a valuable metric for long-term planning.
3. Customer-Centric Focus: NPS helps companies focus on the customer experience. By identifying Promoters and Detractors, businesses can take targeted actions to improve satisfaction and build loyalty.
4. Benchmarking: NPS allows companies to benchmark themselves against industry standards or competitors. Many industries have established average NPS scores, and businesses can compare their performance to these benchmarks.
5. Driving Improvement: By regularly tracking NPS and analyzing feedback from Detractors, companies can identify areas for improvement. This feedback loop helps businesses make data-driven decisions to enhance customer experience.

Having an independent company like AgedAdvisor capture this feedback and give an NPS allows consumers to answer without feeling coerced, thereby reducing an bias that might be created by the organisation asking directly.