Based on Fred Reichheld's book “The Ultimate Question. Driving Good Profits and True Growth ”, ( Harvard Business School Press, ISBN 1-5319-783-9)

WHAT IS NET PROMOTER SCORE (NPS)?

Reichheld's concept is devastatingly simple. You can throw away all customer satisfaction interviews and replace then with one (ultimate) question: “On a scale 0f 0 to 10, how likely are you to recommend our company to a friend or colleague?”

Anyone who gives you an answer 9 or 10 is a Promoter . Those answering 7 or 8 are Passively satisfied. A customer that answer 6 or less is designated a Detractor .

All you have to do is subtract the percentage of Detractors from the Percentage of Promoters and you come up with a Net Promoter Score (NPS) which correlates highly with growth and profits.

Put in a formula: NPS = P-D.

That's it. Game over.

Promoters represent customers who are an active sales staff getting others to try out your company.

The Passives refer others at a rate less than half of Promoters and will switch allegiance at the whiff of a better deal.

The Detractors are annoyed customers and go around bad-mouthing your company, turning off prospects and demoralizing staff (they are good for 80% of negative referrals). “They suck the life out of a firm” declares Reichheld.

WHY USE NPS?

Firstly, research done in the United States , England , and Australia shows there is a positive correlation between a higher NPS score and company growth.

•  Word of mouth was found to predict sales growth for retail banks, car manufacturers, mobile phone networks, and supermarkets.

•  Companies enjoying higher levels of word of mouth advocacy grew faster than their competitors.

•  Companies suffering from low levels of mouth advocacy and high levels of negative word of mouth grew slower than their competitors.

•  A 7-point increase in word of mouth advocacy correlated to a 1% increase in growth.

•  A 2% reduction in negative word of mouth leads to just under 1% growth.

•  Companies with relatively high Net Promoter scores and relatively low negative word of mouth rates grew 4 times as fast as companies    with low Net Promoter scores and high negative word of mouth.

Secondly from an administrative and response rate perspective, it is very simple. Only one question instead of a list of questions a customer has to wade through, thus the probability of them responding is huge – how many times have you had to fill in a questionnaire that seems to go on forever and you simply give up halfway through?

GOOD AND BAD PROFITS

For sustainable growth, not all profitable customers are good. Some generate bad profits, others good profits.

Bad profits boost short-term earnings but burn out employees and alienate customers – they are profits earned at the expense of customer relationships. Whenever a customer feels misled, mistreated, ignored, or coerced, then profits from that customer are bad – extracting value from customers, not creating value for them. These customers become Detractors – they will cut back on purchases, switch to the competition if they can, and warn others to stay away from you. Ultimately bad profits strangle a company's growth.

Good profits are dramatically different. A company earns good profits when it delights its customers making them increase their purchases, make them willing to come back for more and bring all their colleagues, friends, and family. They become part of the company's marketing department – giving enthusiastic referrals and are Promoters of your company ultimately leading to superior growth over your competition

HOW WE CAN HELP

For more information on Net Promoter Score or if you wish to implement such a process in your company, call Douglas MacGregor at (011) 805-3588 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it

REFERENCES

Fred Reichheld “The Ultimate Question”, ( Harvard Business School Press, ISBN 1-5319-783-9)
The Ultimate Question—A Disruptive Concept - Jay Curry
Advocacy drives Growth – Customer Advocacy Drives UK Business Growth – Dr P Marsden, A Samson, N Upton