VIDEO TRANSCRIPT

Understanding the Net Promoter Score

The Net Promoter Score is a measure that is gaining traction by forward thinking marketers. I had one student that used to work for the Apple Store that told me that the Net Promoter Score was a measure that this company took very seriously, so it is important to at least understand what it is as measure of performance or KPI, Key Performance Indicator.

After you finish this video lesson, you will be able to:

-Recognize a Net Promoter Score and its application

-Understand media terminology associated Net Promoter Scores

-Understand the concept of working with a Net Promoter Score

-Understand how to calculate a Net Promoter Score

-Assess the inclusion of Net Promoter Score as a KPI on which to build and maintain a good reputation

Let’s start with basic terminology that you need to understand:

Net Promoter Score or NPS is a calculated number used nowadays by many large companies as a customer feedback tool. The calculated number or score is an unambiguous number that is easy to understand for all employees and serves as a useful input for managers to assess if their customers are satisfied or whether adjustments need to be made based on this score. The NPS also gives a good indication of growth potential and customer loyalty for a company or product.

Promoters is a designation given to the customers or a company that answered with a score 9-10(on a scale of 1-10) to the survey question: “How likely is it that you would recommend [company X] to a friend or colleague?”. Promoters are loyal enthusiasts who will keep buying and refer others, fueling growth.

Passives is a designation given to the customers or a company that answered with a score 7-8(on a scale of 1-10) to the survey question: “How likely is it that you would recommend [company X] to a friend or colleague?”.Passives are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.

Detractors is a designation given to the customers or a company that answered with a score 0-6 (on a scale of 1-10)to the survey question: “How likely is it that you would recommend [company X] to a friend or colleague?”.Detractors are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

Key Performance Indicator or KPI is a campaign or marketing effort performance measurement. An organization may use KPIs to evaluate its overall success, or to evaluate the success of a particular activity in which it is engaged. NPS is a KPI; other types of KPIs are measures such as how many ratings and impressions were delivered vs. the goal, email open rates, direct mail response rates, and others.

Effectiveness, why should we even care? Let me give you a few reasons, if you don’t know by now. It’s why we get paid to build business and shareholder value, it builds client confidence and retains clients, it’s how we maintain and build budgets, and why we are in business to begin with. The Net Promoter Score, or NPS (registered trademark), is based on the fundamental perspective that every company’s customers can be divided into three categories: Promoters, Passives, and Detractors. By asking one simple question — How likely is it that you would recommend [company X] to a friend or colleague? — acompany can get a clear and simple measure of performance through their customers perspective. The answer to this one question survey is respond 0-to-10 point rating scale and are categorized in three categories. The Promoters scored the question 9-10 and considered the jewel of the crown. A company wants as many promoters as possible to fuel their growth. The middle ground are the Passives scoring the question 7-8. While this group is satisfied but they are vulnerable to the competition. The worst group to have are the Detractors scoring the question 0-6. These people can cause reputation damage to a company. The most important thing is opens here is to understand why they are so negative, and to get to the bottom of the problem so improvements can be made. Is it the service, sales people, the product itself? More research will be necessary to dig deeper on the real reason of unhappiness. You probably have seen a campaign for Domino’s Pizza that shows a focus group of real participants talking about pizza. The real research uncovered that participants were not happy with their pizza, and fueled major development in the product itself. Unhappy customers and negative word-of-mouth are certainly a lethal combination for any business. A forward thinking company will always keep an open mind to constructive criticism, and the NPS survey can be directional in assessing if this is the case. One of the wealthiest men in the world, media mogul Warren Buffet, once said that “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.” It cannot be more clear than that and as consumers, we wish that more companies would take this challenge seriously. Those who do, win with customers and build brand loyalty. Think Apple, besides being a good product, their stores are unparalleled in how they treat and educate consumers patiently. It is in the company’s DNA, so next time Apple dreams up their next generation or iteration of anything, you are probably more open to at least investigate it before you buy anything else. I encourage you to look for a Ted Talks Video on YouTube by Simon Sinek titled “How Great Leaders Inspire Action”. It talks about the culture of great companies. Good and fascinating food for thought.

The "Net Promoter Score" was developed by Fred Reichheldof management consulting firm Bain & Company and Satmetrix, and introduced by a 2003 Harvard Business Review article titled "One Number You Need to Grow". Overall, the NPS can be as low as −100 where everybody is a detractor, or as high as +100, where everybody is a promoter. A positive NPS (or higher than zero) is considered good, and an NPS of +50 is excellent. This metric is not without criticism because of its alarming simplicity in predicting success or failure, growth or stagnation for companies, but it remains a good directional metric or performance that could be met with the curiosity of a company’s management to get to the bottomline of the reasons why their customers feel a certain way.

OK, let’s start. Please refer to the video lesson PPT.

STEP ONE: Understanding the numbers

Let’s say that this company decided to track their customer satisfaction be establishing a Net Promoter Score that they can track over time. They ran the one-question survey and 50 people responded and completed it. The results were as follow: 22 people answered the question with 9-10 scores (Promoters), 11 people answered with 7-8 scores (Passives), and 17 people answered with 0 and 6 scores (Detractors).

STEP TWO:Calculate the Net Promoter Score

The formula of calculating a Net Promoter Score is simple:

a)Take the total surveys filled as the base and divide each category’s total entries by this base multiplied times 100:

  • Promoters = 22 divided by 50 = .44 multiplied times 100 = 44%
  • Passives = 11 divided by 50 = .22 multiplied times 100 = 22%
  • Detractors = 17 divided by 50 = .34 multiplied times 100 = 34%

b)Subtract the Promoters from the Detractors to get a Net Promoter Score

  • 44 – 34 = 10
  • NPS is +10

STEP THREE: Reporting the Results

In a survey conducted among 50 people to establish a Net Promoter Score, the results were divided as follow: 44% of the customers can be categorized as Promoters of the brand, 22% as Passives, and 34% as Detractors of the brand. While we would like to further research why 34% of the total customer sample are unhappy with the brand, the Net Promoter Score is in a positive 10%, meaning that there are 10% more Promoters than Detractors for the brand. From these results, the company will start tracking changes and make improvements where are needed.

As a last comment on this KPI metric, according to Reichheld the average American company scores less than +10 on the NPS, while the highest performing organizations are situated between +50 and +80. These values may however vary considerably from sector to sector and from culture to culture.

To understand the motives of Promoters and Detractors it is recommended to accompany the NPS question by one or more open questions that probe the underlying reasons behind the given score. This allows you to make the appropriate adjustments to increase the future NPS, either by boosting the percentage of Promoters, or by reducing the proportion of Passives and Detractors (or better yet, a combination of both).

Always remember that metrics are key in the evaluation of campaigns and clients demand them… always go by “If you can’t measure it, you can’t manage it”, and even further “you can’t change what you don’t acknowledge, so knowing where you stand is the foundation of solid and sustained growth.

Now practice in the individual lesson PPT and remember that you can find the answers in the Full lesson PPT.

See you in the next video lesson

PART B: LEARNING HOW TO CALCULATE TOTAL RATINGS USING REACH AND FREQUENCY