The Net Promoter Score (NPS)Examining the "Question"

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Increasingly more popular in Quebec and in Canada, the Net Promoter® Score1 (more commonly referred to as “NPS”) has become a key element for companies concerned about the quality of service offered to their customers. In fact, leading companies from all sectors such as the Air Transat Group, BMO, Groupe Québécor (Vidéotron le Superclub, Microplay, etc.), Les Rôtisseries St-Hubert, IRIS The Visual Group, Desjardins, Énergie Cardio, SSQauto and many others have made NPS a key tool to assist them in the measurement and management of their customer experience. However, the rapid growth of its popularity has resulted in the NPS being poorly understood at times, even incorrectly used.

We therefore consider it useful to shed light on the key elements to be mastered before using NPS. At the end of this article, which is primarily intended to be a summary of the NPS concept, readers will be able to fully understand the foundation and origins of NPS, its development over the last 10 years, and the elements that allow its use and impact to be maximized.

1 NPS®, Net Promoter® and Net Promoter® Score are registered trademarks of Satmetrix Systems, Inc., Bain & Company and Fred Reichheld.

Mr. Watier holds a Doctorate from Université Laval, a Post-Doctorate in Experimental Psychology from Carleton University and has authored numerous scientific publications. He has a strong academic background and impressive experience in the fields of quantitative and qualitative analytical methods, research, psychometrics, cognitive psychology, and perception. He also holds two masters in business administration (EMBA from Montreal and Paris).

Are you aware of one of the most popular Key Performance Indicator related to the customer experience used in North America and Europe?

Christian Watier, MBA, Ph. D.President

(CSO) Officer Science Chief &

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The Net Promoter® Score (NPS) is a measure of the strength of customer loyalty that allows customers to be categorized into three groups, based on their level of enthusiasm in recommending your company or product to a friend or colleague:

Promoters (score of 9 or 10) are enthusiastic supporters who will continue to buy your products and recommend them to others, thus driving your company’s growth.

Passives (score of 7 or 8) are satisfied customers, but are not very enthusiastic and are vulnerable to the competition’s offers.

Detractors (score of 0 to 6) are dissatisfied customers who could hurt your brand image and hinder growth through negative word-of-mouth.

A single question provides most companies with the best indicator of customer loyalty: How likely is it that you would recommend (Company X / Product X) to a friend or colleague? On a scale of 0 to 10, you can calculate your Net Promoter Score (NPS) by using the percentage of promoters and subtracting the percentage of detractors. NPS scores can thus range from -100 (where all customers are detractors) to +100 (where all customers are promoters).

Definition of NPS

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Origins of NPS

The NPS concept was introduced by Frederick Reichheld in 2003 in an article entitled “One Number You Need to Grow” in the Harvard Business Review. In the article, the author shows, through two years of research, that the question most often correlated to customer loyalty is the one that measures the customer’s intention or not to recommend a company to friends or colleagues (see Figure 1).

Following the article, there have been a long series of books and articles on the question, including three main books published in 2006 (The Ultimate Question: Driving Good Profits and True Growth), in 2009 (Answering the Ultimate Question) and in 2011 (The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World).

Figure 1

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Main advantages of NPS

• It is an indicator that is easily understood by everyone, equally by senior management and front-line employees

• NPS is simple to measure (only one question is required) compared to “composite” indices that require several questions

• The indicator is highly credible since several studies have shown its strong positive correlation with a company’s profitability

• NPS is a mobilizing indicator that increases employees’ awareness and directs them to the same goal: increasing the number of promoters and decreasing the number of detractors in order to enhance a company’s “buzz” (e.g. social networks, word-of-mouth)

• Comparable data are available for a company to be positioned in its field and towards its competition (provided the data gathering and indicator calculation methods are similar)

Since its creation, NPS has been widely popular. Still going strong today, it has a good reputation, mainly for the following reasons:

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NPS has first and foremost been a digital “score,” meaning that for most companies, the only thing that mattered was the score itself (too many companies even today are unfortunately still at that stage). Over the years, the concept has evolved significantly. In fact, concepts such as relational and transactional NPS, mainly associated with the time of measurement, have been created. The notion of analyzing the qualitative comments that justify the score that is granted has also been addressed. More recently, following the employee mobilization culture, the Employee Net Promoter Score (eNPS) has appeared. Although still little known in Quebec, eNPS, just like NPS, consists in measuring an employee’s intention to recommend working for his company or his immediate superior to friends or colleagues (in short, the employee is the promoter or not for the company where he works). Several U.S. companies use it and even include it in their job postings to make them more “appealing”.

Today, NPS is more a culture than an actual indicator. In fact, successful companies that use NPS efficiently have understood the importance of managing detractors within a company and adopt a strategy similar to the principle of “closing the loop.” This principle consists in measuring NPS continuously, frequently analyzing the results (especially qualitative data), making the required operational changes, and lastly observing the impact of the changes on the NPS indicator. The purpose of this approach is obviously to keep the number of detractors to a minimum and maximize the number of promoters of the company. NPS culture is also more flexible today, as evidenced by the slight variations in the wording of the question, changes to the response scale that is used, etc. However, the main focus is still on detractor management.

Development of NPS

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Correlation to financial data

As previously mentioned, a number of publications show strong positive correlations between NPS and the various corporate financial indicators (e.g. retention rate, billing average, total annual expenses per customer, cost control, employee turnover). However, few studies have demonstrated its relationship with the concept of the quality/price ratio, which is very widespread in the customer experience field. To back this fact, the following graph shows the results obtained with a Lanla client from the retail sector for which we measured this correlation over the past year.

Figure 2 clearly shows that, for the same given price and regardless of the average household income, promoters have a much better perception of the quality-price ratio than so-called detractor or even passive customers. Note that this relationship was observed numerous times over the years with our clients from all sectors (e.g. Énergie Cardio, Les Rôtisseries St-Hubert, IRIS The Visual Group, Vidéotron, La Cordée, Mondou).

Figure 2

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There are four main types of NPS: transactional, relational, comparative and Employee NPS (eNPS). The different NPS types are differentiated mainly by the time when NPS is measured, the target customers, and the target objective in relation to use of the results.

This “interventionist” type of NPS is measured very quickly following a transaction by a client, whether a purchase occurred or not. It can also be measured at various stages of the customer process. The responses are therefore significantly affected by the customer experience at the time of the transaction.

Less stable over time and more difficult to compare, it allows quick action to be taken toward any detractors (provided they are willing) and favours quick measures among front-line employees in order to implement operational changes. This type of NPS can become a powerful management tool for operations managers.

This “informational-interventionist” type of NPS is usually measured among customers who are familiar with the company but have had no recent transactions (Lanla recommends at least three months). The responses are affected to a greater extent by the company’s reputation and are therefore more sensitive to periodic events (e.g. scandals, media coverage).

More stable over time and easier to compare, this type of NPS is more of a marketing tool that allows a company’s strategic policies to be defined and planned. This type of NPS is therefore highly valued by marketing managers.

1. Transactional NPS

2. Relational NPS

Types of NPS

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This type of “informational” NPS is usually measured among those who are familiar with your company and/or at least one of your competitors, but without any recent transactions with these companies (Lanla recommends at least three months). Just like relational NPS, responses are influenced to a greater extent by the company’s reputation and are therefore more sensitive to periodic events.

This type of NPS allows a valid and reliable comparison to be made since it is measured at the same time and using exactly the same methodology (data gathering and rating calculation). This NPS is highly sought after by senior management and boards of directors.

This type of “informational-interventionist” NPS is measured among the company’s employees, and very often during surveys on employee mobilization.

Just like transactional NPS, eNPS varies over time since it is very sensitive to periodic conflicts between employees and/or their immediate superiors. More difficult to compare (versus another company) and requiring complete confidentiality, it is more of a tool that allows human resources and management to identify the actions required to further mobilize their employees.

In fact, several recent studies show a correlation between employee mobilization and the quality of the customer experience provided by said personnel, which accounts for the growing interest for this type of NPS. eNPS is therefore widely used by human resources and middle management.

3. Comparative NPS

Employee NPS (eNPS)

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For an NPS rating to be usable, what should the minimum size of the sample be? The answer is both simple and complex: everything depends on what you want to use it for! Are you trying to determine whether or not there is a statistically significant difference or will you use it as an operational management tool in a customer experience management program? Are you looking to compare yourself against the competition strategically or determine a personal performance indicator leading to bonus attribution? Unfortunately, there is no magic number.

All statistics experts will tell you that the size of the sample to be aiming for is primarily dependent on three elements, i.e. the margin of error that you consider to be acceptable, the level of trust that you are looking for in your results, and the response rate of the survey respondents (based on the selected methodology). In fact, there are very useful formulas to help you precisely calculate the size of the required sample based on these variables. In a more accessible approach, Lanla recommends that there should ideally be at least 200 to 400 respondents, a number that corresponds to the NPS variation by 1% or less when a promoter turns into a detractor (assuming a theoretical ratio of 1:3 detractors, 1:3 passives and 1:3 promoters).

We noted that certain companies commit the error of making strategic decisions or even taking actions with an employee on the basis of an NPS rating obtained at the end of the month following results obtained with 20, 10 or even 5 respondents. Employees can thus be attributed an NPS rating of +65 in the first month and of -40 in the next month, which lends little credibility to the score and demobilizes employees. This approach is obviously not an ideal one.

(e.g. https://support.zendesk.com/hc/en-us/articles/203759086-NPS-best-practices-The-most-effective-way-to-send-a-Net-Promoter-Score-survey)

Required sample

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What constitutes a good NPS?

As previously indicated, the NPS rating could theoretically be found between -100 (only detractors) and +100 (only promoters). This is a theoretical perspective since in practical terms, the scores observed worldwide range to a greater extent and primarily between -40 and +80. The literature shows an NPS greater than +50 as being a score that gives access to NPS “Star” rankings, i.e. the world elite. Afterwards, once companies using the NPS began to use a count in hundreds and thousands, a good NPS was defined as being a high NPS rating based on the company’s business sector. Hence, an NPS of +20 may be an excellent score in a given sector (e.g. life insurance or urban transit), while it may be at most fair in another sector (e.g. restaurant or financial sectors). Another key element that should not be disregarded is the proportion of each group (detractors, passives, promoters) that makes up the NPS rating. In fact, an NPS of +60 made up of 20% detractors and 80% promoters (no passives) is much less impressive than an NPS of +40 with 3% detractors (where there are 57% passives).

This being said, with almost 10 years experience in the field, we are proposing that when there are no relevant and valid comparative data in the particular business sector, the target objective is an NPS of +50 with at most 5% detractors, with the following scale being considered as a good reference tool:

Below 10

11 to 20

21 to 30

31 to 40

41 to 50

Over 50

Poor

Fair

Good

Very good

Excellent

Elite

LEVELSCORE

11 to 20 Fair

31 to 40 Very good

Over 50 Elite

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Beyond the rating:the importance of qualitative data

All too often these days, there are companies that appear to have an interest only in the NPS rating itself (the “what”). However, as reported by the author several years ago, we believe that it is critical to understand the reasons and motivations that justify a respondent granting a score of 0 to 10 (the “why”).

In fact, a measure of the NPS without the gathering of qualitative data to justify the attribution of the score provides no understanding of the responders’ motivations, thus making it impossible to have a concrete plan of action (no possibility of using the “close the loop” strategy). Furthermore, we noted over the years that it is much more efficient to ask respondents why they did not award a higher score rather than simply asking them to justify their response. Doing so greatly increases the quality of the qualitative information that is gathered.

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Should an NPS objective be set?

Should an NPS objective be set? The answer is simple: no.

Several companies often include goals to be met with respect to the NPS rating in their strategic plans (e.g. annual progressive target in a three-year plan). Is this a good practice?

At least not without an action plan, which must absolutely be included with the target. In fact, an increase in the NPS rating is an outcome, the result of concrete operational actions that produced results, and not a goal in itself. It is much more effective to set goals regarding the operational behaviours to adopt (such as placing an emphasis on key moments of truth for the customer and not mastered well by the company) instead of the NPS rating.

Companies that are the most successful in the use of the NPS are those that have adopted such an approach.

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based on the NPS rating

Recognition and bonus systems

In the same vein, a fair number of companies have chosen to develop recognition and bonus programs based on the NPS rating. This practice is also not advisable. When companies adopt such a practice, the pressure exerted on the NPS rating usually incites beneficiaries of the recognition/bonus to focus their efforts on “ensuring” that the NPS attains the desired target rather than concentrating on the customer and a real improvement in the customer experience. This is true for the auto industry, for instance.

In fact, anyone who has purchased a vehicle in the last few years has witnessed the phenomenon of “9 is like zero!” The mechanisms that have been implemented (paper documents explaining the importance of getting a ten-out-of-ten score on all the questions in a survey that is about to be taken, an e-mail, or a reminder call before receiving the survey in question, etc.) are very powerful.

The following is an example of what happens when too much pressure is exerted on performance indicators such as the NPS: employees adopt all kinds of questionable and at times even fraudulent practices in order to reach the targets that have been set, and completely lose track of the improvement in the customer experience. Remember that an NPS, or any other performance indicator, that is high through artificial means does not constitute favourable buzz for the company and therefore is of no value.

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The importance of comparisonswith comparable methods

When browsing the Internet and in various articles on the subject, it is now possible to obtain a significant quantity of NPS lists from all around the world (e.g. England, France, Brazil, United States) and from companies in all sectors. With the increase in complexity of data gathering methodologies and psychometric variations of the issue and response items, the results need to be considered with caution.

In fact, it is unfortunately very rare to see a company disclose the methodology it used to obtain the NPS being presented. Is the NPS relational or transactional? Is the sample of respondents representative? What is the sample size? How was the question worded? Some will even determine their NPS rating through an average of several NPS ratings (e.g. average of relational NPS and transactional NPS).

For all these reasons, we recommend using a comparative NPS measurement strategy obtained from identical methodologies. In this way, you are assured of comparing apples to apples!

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NPS does not take into account the intensity of what is being said: certain detractors can be much more damaging than others (5% of very “loud” detractors can thus be more damaging than 10% of “quieter” detractors)

NPS does not consider the differences between detractors who gave a score of 0 and those who gave a score of 6, whereas there is clearly a difference between them

NPS makes no differentiation between a score of +50 with 80% promoters and 30% detractors, and a score of +50 with 50% promoters and 0% detractors

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NPS is poorly suited to situations involving a long transaction process (e.g. purchase of a home) and/or when the transaction may end in a refusal (e.g. no compensation following a home insurance claim after a disaster). Many recommend the Customer Effort Score (CES)

5.The causal link between NPS and a company’s profitability has not yet been proven mathematically; only a correlational link has been observed

Certain studies show that NPS is not a better predictor of a company’s profitability and customer loyalty than a four-point satisfaction scale (by combining the “satisfied” respondents with the “very satisfied” respondents)

NPS is much less precise than an indicator from a measurement tool involving several questions

NPS is not very sensitive to cultural differences (e.g. certain companies never give a 0 or 10 rating) and categorizations (e.g. promoters are 9’s and 10’s only) are occasionally questioned

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Main criticisms/weaknesses of NPS

Certain detractors can be much more damaging than others!

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To conclude, despite the criticisms, NPS is a highly valuable and useful indicator, provided that it becomes a credible customer experience measurement and management tool and is centered on a common objective. Naturally, it is important to adopt a multidimensional approach in the measurement.

Use of NPS should not be the only indicator for customer experience measurement and management that defines the action plans and directs corporate strategies. In addition, remember that each type of objective has its own specific NPS, with the ideal naturally being measuring all four (transactional, relational, comparative and eNPS) and of having a representative sample of sufficient size for each one.

In view of these facts, it is clear that companies that maximize NPS use and impact are not centered on the indicator itself but rather have adopted a way of managing detractors. They also favour recognition and bonuses based on an improvement in desirable operational behaviours rather than on the attainment of

centered on detractor management

A multidimensional approach in the measurement of the customer experience

a specific NPS rating. Lastly, note that with an approach that is much more “interventionist” than “informational,” companies that are currently successful and that will continue being so in the future will have an ongoing customer experience measurement and management process that will enable them not only to identify the detractors but also to respond quickly (ideally in a few hours at most) to try to convert the detractors into promoters as quickly as possible. In this respect, several companies in Quebec and across Canada have already incorporated one or more detractor management mechanisms with an alert system so that detractors remain so for as little time as possible. There is in fact a small window during which a detractor is “emotionally vulnerable” when it is possible to modify the customer’s opinion, after which a “consolidation” phenomenon occurs, meaning that the customer’s opinion toward the company solidifies. It then becomes very difficult to get the customer back, not to speak of the potential damage that the customer in question could cause the company in the future as a detractor.

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Learn more about this topic with these resources

Websiteshttp://www.netpromoter.com/why-net-promoter/knowhttp://en.wikipedia.org/wiki/Net_Promoterhttps://fr.checkmarket.com/2011/06/votre-net-promoter-score/https://fr.surveymonkey.com/mp/net-promoter-score/http://www.manager-go.com/marketing/net-promoter-score.htmhttp://www.myfeelback.com/fr/blog/creer-questionnaire-nps-parfaithttp://www.netpromotersystem.com/about/three-types-of-scores.aspxhttp://www.genroe.com/blog/transactional-vs-relationship-customer-feedback-which-is-right-for-you/7409http://www.satrixsolutions.com/introducing-employee-net-promoter-score-enps-to-measure-employee-satisfaction/http://www.netpromotersystem.com/about/employee-engagement.aspxhttp://www.e-marketing.fr/Thematique/Direct-Digital-1003/Breves/NPS-GO-mesure-et-gere-l-experience-client-42827.htm

ArticlesReichheld, Frederick F. (December 2003). « One Number You Need to Grow ». Harvard Business Review. Markey, Rob; Fred Reichheld; Andreas Dullweber (December 2009). « Closing the Customer Feedback Loop ». Harvard Business ReviewMeasuring Customer Satisfaction and Loyalty: Improving the ‘Net-Promoter’ Score » by Daniel Schneider, Matt Berent, Randall Thomas and Jon Krosnick

BooksReichheld, Fred (2006). The Ultimate Question: Driving Good Profits and True Growth. Boston, Mass.: Harvard Business School Press. ISBN 978-1-59139-783-0.Owen, Richard; Brooks, Laura L. (2009). Answering the Ultimate Question: How Net Promoter can Transform your Business. Hoboken, NJ.: John Wiley & Sons Inc. ISBN 978-0-470-26069-2.Reichheld, Fred; Markey, Rob (2011). The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World. Boston, Mass.: Harvard Business Review Press. ISBN 978-1-4221-7335-0.