Have you ever bought something online or called a company and at the end of the interaction, they ask you to rate your experience from 0-10? Yeah, it's pretty common these days. Companies really want to know how you're feeling - did they hit the mark or miss the point? If you answer 9 or 10 when asked about the likelihood of recommending the company to someone else, then you are seen as a ‘promoter’. On the other hand, if you answer 7 or 8, you’re considered ‘passive’, while 6 and below is seen as a ‘detractor’ - someone who actively discourages friends from trying out that brand.
The concept of NPS was first developed by Fred Reichheld at Bain & Company in 2003. It has become widely accepted since then due to its simplicity and ease of understanding. In fact, two-thirds of Fortune 1000 companies now use NPS to quantify their customer experiences (CX) and employee experiences (EX).
However, there are some issues, and Reichheld acknowledged this in the December 2021 issue of the Harvard Business Review, where he wrote an article titled ‘Net Promoter 3.0.’ The main issue was that self-reported NPS scores can create false information about a company is performance, so Bain introduced an additional metric: the earned growth rate, which captures the revenue growth generated by returning customers and their referrals.
This effectively audits the NPS score to give the reported figures greater credibility. Banks often know who referred a customer because it is captured during the account, or loan, opening procedures, so a bank can quite easily apply stronger metrics around NPS.
The updated NPS still has critics. In particular, capturing referral data might be easy enough during a bank loan application, but it’s not in many other types of business. NPS also doesn’t address different behavior across demographic groups or give insight into why customers are promoters or detractors. It can tell you that most customers are happy but not indicate why they feel so good.
NPS has had to evolve. It was always easy to understand, but this simplicity meant it was easy to game the system. Customers are often asked to talk to a manager before responding with anything other than a 10. Bain revised NPS because it was always good at capturing the low-hanging fruit. It captures people who love your brand and those who really dislike it, but those in the middle still need to be studied.
This is easy to understand. Think about the last time you bought a product from Amazon. They almost certainly sent you a message asking you to review the product. How many people spend time writing these reviews? It is likely to be either those who love the product and want to spread the word or those who had a terrible experience and want to warn others.
It’s the same with a hotel. If it is terrible, you might review it on TripAdvisor to warn other travelers, but if you are satisfied, why spend time writing a review that just says ‘it was OK’?
The difference between poor service and adequate or fairly good service is quite small. However, the journey from good to great service is a lot more difficult to achieve. It does require feedback and insight into what your customers are thinking. This is where metrics like NPS can be valuable.
Earned NPS anchors the NPS metric to the reality of the financial performance of the company. This can create some important insight that goes beyond the earlier simple version of NPS.
What does this mean? Think about a loud complainer that is a very vocal detractor. Are they really going to cancel their subscription, or are they just good at complaining about it? With traditional NPS, all we would know about is the score from a detractor. With Earned NPS, we can connect the complaint to action such as canceling a subscription - did they do it or just say they will do it?
This NPS evolution allows us to be more objective when exploring customer feedback. Some customers just vanish. They don’t complain or write blogs about why they are leaving, they just stop buying from your company. Their lack of feedback will not be captured in the traditional form of NPS, or at best, will be captured as a passive customer that is not particularly happy or upset.
We need this NPS reboot to help us build a crystal ball that can see what customers want in the future. What are they really complaining about? What are they silently upset about? Predictions based only on what customers say, rather than what they do, will be flawed.
It’s time to let go of metrics that rely on self-reporting. Customers say they will only eat healthy food, visit the gym daily, and stop drinking. They rarely do all these things. Your customer metrics need to reflect the reality of how your customers actually behave - who is telling their friends about your products?
It takes a lot for a customer to really be a strong promoter of a brand, and we notice it when it happens. Look at the customers lining up all night outside an Apple Store when a new product is released. This can take your insight to the next level.
Real promoters are more like fans of a brand than just customers. How do you nurture these customers and create a community of promoters?
It’s difficult to find examples of companies using the updated NPS version. Perhaps Bain is using the upgraded version for all clients, but the list of companies using some form of NPS is impressive.
Customer experience is important. It creates loyalty and advocacy. A great experience leads to a customer that buys from your brand again in future and tells their friends about their positive experience. NPS is a useful metric, but it is only one metric. No executive should believe that a single metric is enough to create a fantastic experience, but it certainly is a step in the right direction. It's interesting to consider why many companies still rely on the traditional version of NPS instead of the updated NPS 3.0.
Jonas Berggren joined Transcom in 2020 as Head Of Business Development Northern Europe. Prior to this, Jonas was the co-founder and partner of Feedback Lab by Differ. Earlier in his career, Jonas held the position of CEO at Teleperformance Nordic.