Today, we’re diving into the world of the Net Promoter Score (NPS). You know, that little number of companies love to chase. But how much of it is really gold, and how much is just glitter?
Let’s uncover the origins, the value, and yes, the pitfalls of NPS. Trust me, by the end of this, you’ll have a clear picture of what makes NPS tick and whether it’s the right metric for your business.
A Little History Lesson
To understand the NPS, we need to go back to 2003. Mr. Reichheld created the NPS as a way to measure customer loyalty. The idea was simple: ask customers one question, “Would you recommend us?” and use their answers to predict profitability. Companies were searching for an easier way to gauge loyalty, and NPS seemed to fit the bill perfectly.
From a scientific perspective, loyalty is quite a complex concept. It involves repurchase intentions, word of mouth, price insensitivity, and complaining behavior. Traditionally, these aspects were measured using a scale with 12 statements, which wasn’t exactly user-friendly. So, the NPS was a breakthrough in simplifying this measurement.
The Birth of NPS
Inspired by an organization that asked its customers about their willingness to recommend, Reichheld found that this question was a good predictor of profitability. Originally, NPS was designed to measure loyalty and provide direct feedback. If a customer gave a low score, an account manager would follow up to address the issue. This feedback loop was key to the original concept.
Fast forward almost 20 years, and the adoption of NPS is nothing short of incredible. It’s a marketing case study in itself. Nearly every company uses it today, but as the scale of its use grew, so did the challenges.
The Challenges of Direct Feedback
When you’re dealing with 100,000 customers, it’s impossible to follow up with each one individually. Some companies still use NPS for direct feedback, hoping to improve their overall score by addressing individual issues. But let’s crunch the numbers. If you survey all your customers and get a 20% response rate, which is pretty good, and 25% of those respondents are unhappy, that’s only 5% of your total customer base. So, direct feedback only impacts a small fraction of your customers.
Moreover, companies believe that by solving issues reported through NPS, they can enhance their overall score. But this calculation often misses the mark because it only addresses those who voiced their dissatisfaction. The root causes of NPS scores are another area of concern.
Root Cause Analysis
Many organizations try to find the drivers of NPS through root cause analysis, using either pre-defined topics or AI to analyze open text responses. The challenge here is twofold. First, there’s a lack of statistical checks to confirm a cause-and-effect relationship between identified root causes and the NPS score. Second, the feedback can be very abstract, making it difficult to pinpoint exact areas for improvement.
For instance, customers might cite “speed of the process” as a reason for their score. But is that their true latent need, or is there something deeper at play? Without a thorough understanding, companies risk making superficial changes that don’t address the underlying issues.
Smart Statistics to the Rescue
If you want to use NPS effectively, it’s crucial to go beyond root cause analysis and employ Smart Statistics. Here’s how:
- Building the Survey: Start with a journey workshop to map out the customer’s steps and emotions. Use this information to create a detailed survey with 30-40 statements, rather than just one question and an open text field.
- Analyzing the Data: Once you have responses from 100 or more customers, use three statistical techniques:
- Factor Analysis: Groups related questions to identify latent needs, like personal attention.
- Regression Analysis: Determines the impact of each factor on NPS, showing which improvements will have the most significant effect.
- Laser Focus: Focus on the top drivers to increase NPS quickly and effectively.
A Balanced View on NPS
Despite its widespread use, NPS has its critics. Some CX experts argue that it’s not the best metric, pointing to alternatives like customer satisfaction or customer effort scores. Yet, NPS remains a key metric for many boards and organizations.
The key takeaway is that if NPS works for your company and you see improvements, stick with it. But if you find it volatile or challenging to interpret, consider measuring it annually as a brand experience metric. This approach aligns with the idea of setting a compass, as we discussed in another podcast, ensuring you’re moving in the right direction without getting bogged down in day-to-day fluctuations.
Final Thoughts
In conclusion, while NPS has its merits, it’s essential to use it wisely. Understand its limitations, employ Smart Statistics, and focus on actionable insights. By doing so, you’ll not only enhance your NPS but also gain a deeper understanding of your customers’ needs and how to meet them.
Thank you for joining us on this deep dive into the sense and nonsense of NPS. What’s your number one key insight from this discussion? Let us know, and see you next time!
Ciao!
