Net promoter score (NPS)

Definition

Net Promoter Score (NPS) is a metric used to gauge customer loyalty and satisfaction by measuring the likelihood of customers to recommend a company's products or services. It categorizes respondents into promoters, passives, and detractors, allowing businesses to assess their overall customer sentiment and identify areas for improvement. This score is crucial in understanding stakeholder engagement as it directly reflects how well a company is meeting the needs and expectations of its customers.

5 Must Know Facts For Your Next Test

1. NPS is typically calculated by subtracting the percentage of detractors from the percentage of promoters, yielding a score that can range from -100 to +100.
2. Promoters are customers who score 9-10 on the NPS scale and are likely to contribute to positive word-of-mouth and repeat business.
3. Detractors are those who score between 0-6, indicating dissatisfaction that can lead to negative reviews and loss of customers.
4. A higher NPS generally correlates with stronger business growth and customer retention, making it an essential metric for companies aiming for long-term success.
5. NPS surveys usually consist of a single question asking customers how likely they are to recommend the company, followed by an open-ended question for additional feedback.

Review Questions

• How does Net Promoter Score (NPS) differentiate between customer segments, and why is this distinction important for businesses?
  • Net Promoter Score (NPS) differentiates between three key customer segments: promoters, passives, and detractors. This distinction is crucial because it allows businesses to identify which customers are most likely to advocate for their brand versus those who may harm its reputation. By understanding these segments, companies can tailor their engagement strategies, improve customer experiences for detractors, and leverage promoters to foster growth through referrals.
• What role does NPS play in evaluating stakeholder engagement, and how can businesses use this information for improvement?
  • NPS plays a significant role in evaluating stakeholder engagement by providing insights into customer loyalty and satisfaction. By analyzing NPS data, businesses can identify gaps in their service or product offerings that may not meet customer expectations. This information allows companies to implement targeted strategies to improve engagement with stakeholders, ensuring that their needs are met while also fostering stronger relationships.
• Assess the impact of regularly measuring NPS on a company's strategic decision-making and long-term growth.
  • Regularly measuring NPS significantly impacts a company's strategic decision-making and long-term growth by providing ongoing insights into customer sentiment. By consistently tracking this metric, businesses can identify trends over time and make data-driven decisions that enhance customer experiences. This proactive approach helps companies pivot quickly in response to stakeholder feedback, ultimately leading to improved loyalty, reduced churn rates, and sustained growth as they align more closely with customer needs.

Related terms

Customer Satisfaction (CSAT): A measurement of how products or services meet customer expectations, often assessed through surveys immediately after purchase or service experience.

Customer Effort Score (CES): A metric that evaluates the ease of customer interaction with a business, focusing on the effort required by customers to resolve issues or complete transactions.

Stakeholder Engagement:

The process of involving individuals or groups who have an interest in the company's activities, ensuring their needs and expectations are understood and addressed.