Does a Better Net Promoter Score (NPS) Result in Better Business Performance?
NPS – Historical Perspective
It’s been 15 years since Fred Reichheld first introduced Net Promoter Score (NPS) in his Harvard Business Review article “The One Number You Need to Grow.” Since then, thousands of companies have implemented NPS including AT&T, Delta Airlines, General Electric – the list reads like a “who’s who of successful companies in America,”- all having used NPS to take word of mouth marketing to a whole new level.
The Harvard Business Review article was developed following a day long customer loyalty forum attended by CEO’s of some of the country’s most successful companies, including Vanguard, Chick-fil-A, State Farm and a half dozen others. The presenter that caught everyone’s attention that day was Andy Taylor, the CEO of Enterprise Rent-A-Car.
Andy explained to this group of highly successful chief executives what was behind the phenomenal growth experienced by Enterprise over the past two decades. Enterprise’s annual revenues had risen from under $1 Billion to over $10 Billion from 1997 to 2007. Since that time, revenues had soared to over $22 billion, so apparently the strategy that Taylor outlined was working then and continues to be one of the underpinnings of the company’s success.
Net Promoter Score (NPS) is the Key
Marketing professionals and company leaders have long known that word of mouth marketing is one of the best ways to grow a business. Companies developed long and complicated surveys in an attempt to gauge how well they were meeting the needs of their customers. Over time these multi-question surveys became less reliable as a true gauge of customer satisfaction, and company officials came to mistrust the results claiming they had little to do with actual company performance.
Taylor insisted that simplicity was the key to determining whether or not the company was exceeding customer expectations and developed a survey that included these two questions:
- How would you rate the quality of the overall rental experience?
- Would you rent from the company again?
They forwarded survey results to branch managers and even used them as a benchmark in determining performance pay raises for management teams.
“If your branch survey scores are not higher than the company average, you do not get a performance raise.”
One Simple Question
Based on the Enterprise presentation, Reichheld wondered if there was one simple question that would reveal whether or not customers would remain loyal over time. Following a formal two-year study specifically designed to “match survey responses from individual customers to their actual behavior—repeat purchases and referral patterns—over time,” they concluded that there indeed was one question that could be directly linked to a company’s financial performance:
“How likely is it that you would recommend us to a friend or colleague?”
He and his team called the results of the single question the “Net-Promoter Score,” and carefully linked the score to actual performance across multiple industries to conclude: This number (NPS) is the one number you need to grow – it’s that simple and that profound.
Why Should You Care About Your NPS?
Numerous studies have now demonstrated that a high NPS score can be directly linked to higher profitability. The results of a single question survey are easy to understand and communicate to all stakeholders. When product, marketing, sales and customer success are all focused on the single goal to improve customer satisfaction and raising the NPS score, it is the foundation for sustainable growth.
If you want to boost word-of-mouth advertising, improve customer experience, reduce churn and increase the number of satisfied customers who become brand advocates, NPS is a simple and powerful solution.
Can NPS Be Linked to Profitability?
- NPS leaders tend to grow at more than twice the rate of their competitors. Of the nine percent of companies that have registered sustainable, profitable growth, NPS scores were, on average, 2.3 times the scores of other firms in their respective industries.
- Apple retail store managers called detractors or dissatisfied customers within 24 hours of an NPS survey submission. They then tracked the purchase patterns of detractors that had spoken with store managers vs. those who had not and discovered that the former spent significantly more, resulting in more than $1,000 in additional revenue or $25 million in the first year.
- Phillips Electronics tracked NPS for a sample of accounts over time and found that where NPS increased, revenue grew by 69%. Where it remained steady, revenue grew only by 6%. And where NPS declined, revenues actually decreased by 24%.
NPS is a Journey – Not a Quick Fix
NPS is not a quick one-and-done project and can be difficult to properly implement. It requires executive commitment, dedicated leadership, widespread acceptance, financial investment, and on-going scrutiny. This is not an initiative that will be wrapped up in a few months, but rather an on-going process that will become an integral and pervasive part of how you do business. Though challenging and resource intensive, NPS tracking is a great way formalize word of mouth advertising and directly link it to company profitability.