The Net Promoter Score and the value of Promoters
Whether you use the Net Promoter Score or not yourself, you will undoubtedly have come across this ‘single number everybody needs to know’. On one level it is a calculation that takes into account how strongly people would be likely to promote your brand and returns a single score, expressed as a percentage. On another level, it is an entire approach to business and interacting with your customers that leads to the calculation of this score.
The score itself is what most people are interested in – the difference, expressed in a percentage, between those people who are very likely to recommend your brand and those people and the beauty of it is that it can reflect the different levels of engagement and loyalty that customers feel to different types of brand. A luxury hotel chain, for example, should be expecting a Net Promoter Score of about +70%, an airline shouldn’t expect one higher than +10%, and a cable TV company needs to prepare for a score below -5% (yes, scores can be negative).
At the Marketing 2.0 conference we were lucky to hear from both Richard Owen of Satmetrix (the people behind the NPS) and Conny Kelcher from LEGO (a fervent user of the NPS). Both were able to highlight exactly what the benefit of Promoters is, in hard cash.
Conny’s example looked purely at revenue generated by the individual themselves, and clearly showed that Promoters spend more than Detractors and so it makes good business sense to improve your NPS. Looking at expenditure on LEGO, over the same time period customer spend was as follows:
- Promoters spent 208 Euros
- Fence Sitters spent 165 Euros
- Detractors spent 136 Euros
So, for LEGO, a Promoter will spend 53% more on their product than a Detractor.
Richard, quoting a study of network providers in the US, looked at this in more detail. He considered not just direct spend that the individual makes on the product, but the total contribution they make to the brand – including from recommending others (or indeed otherwise). When looked at like this, the average lifetime value for the network providers was as follows:
- Each Promoter brings an additional $693 in revenue
- Each Detractor is responsible for $1,495 in lost revenue
So the difference between a Promoter and a Detractor was almost $2,200. For Richard this showed that sometimes it can make business sense to buy your Detractors out of their contract with you. Overall it shows that Promoters are a category worth keeping and worth growing.
Read all of our posts based on the Marketing 2.0 Conference here.
Some more reading
- NPS is Growing Up (adaptivepath.com)
- Net Promoter Score: an operational tool to measure customer satisfaction (startuplessonslearned.blogspot.com)
Denise Lee Yohn:
net promoters is indeed a powerful metric of business performance, but it’s not a particularly revealing or instructive one and so there’s a danger in over-emphasizing it.
setting a strategy of increasing the number of promoters is akin to setting a brand positioning of being “the most loved” burger, car, airline, etc. — i’ve seen companies do both and i believe the efforts are misplaced.
“promotion” (like love) is an outcome — the result of what a company has done — as such, it’s more important to understand what drives someone to promote — what makes a promoter a promoter — and then set a strategy to do more of whatever that is.
when i heard richard owen speak about nps at the cmo council conference last year, he emphasized that loyalty is not a business tool; the metric is not a discipline. instead, he explained, what’s needed is for companies to adopt the discipline of measuring, incentivizing, and operationalizing the customer experience. my debrief of his talk can be found at http://tinyurl.com/bbftp9
thanks for listening!
4 April 2009, 11:39 pmOur top five posts in April | FreshNetworks Blog:
[...] 5. The Net Promoter Score and the value of Promoters [...]
1 May 2009, 6:24 amHermes:
To an extent the best thing about Net Promoter is the verbatims – i.e. the comments that come along with the score itself, particular if they are fed back to the appropriate area of the business if it is about an interaction with an employee as it’s the best incentive for the employees themselves to wow their customers.
H
2 May 2009, 3:35 pmMatt Rhodes:
Hermes,
Exactly. I was working with a client recently who were saying the exact same thing – whilst it is useful to know and to be able to track the score itself, it is the verbatim comments explaining why people gave the score they did that offer most insight.
Matt
4 May 2009, 7:27 pm