Five Reasons Why NPS is the Better Customer Satisfaction Tool
In his 2003 Harvard Business Review article, “The One Number You Need to Grow”, Frederick Reichheld introduced the Net Promoter Score. He said that companies use their resources on complex customer satisfaction measurement tools, but the best predictor of growth can be captured in a single survey question: Would you recommend this company to a friend?
The three commonly used customer satisfaction metrics are Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), and Customer Effort Score (CES). They are all straightforward, inexpensive, and easy to implement. Unlike the more complex customer indices, these tools can easily be understood by everyone. So why is NPS the better market research metric?
There is customer segmentation.
NPS categorizes customers into three groups: Promoters, Passives, and Detractors. By grouping respondents, you can easily see which customers you need to focus on to improve customer experience. Continuously monitoring the ratio of your Promoters and Detractors gives you the opportunity to understand how customer relationships are evolving, which is essential to forecast long-term growth for your business.
CSAT and CES do not carry out customer segmentation. This makes it difficult to determine which customers are having issues with the products or services and how customer experience differ between individuals.
It tends to get higher response rates.
Studies show that NPS surveys usually have a response rate ranging from 10% to 30% while the average survey has a response rate of about 3%. Because it only has one question and has a numerical scale for answer options, it is easy and convenient for respondents to provide feedback. Higher response rates can provide statistically significant customer satisfaction data, which translates to more accurate results.
It provides more accurate, objective, and realistic results.
Unlike CSAT, which only asks about a specific experience, NPS uses a survey question that is broader in scope and can sometimes be followed by an open-ended question or two. This makes the tool less prone to bias but highly reliable in providing accurate feedback about a product. Inquiring customers on how likely they are to recommend a brand means that scores and feedback are less likely to be affected by a specific interaction.
On the other hand, CES only focuses on the difficulty customers have when interacting with a brand, but it does not provide information why they are having issues.
NPS is not limited to recent customer contacts, resulting to a larger sample size. It provides a more realistic insight on the overall customer sentiment and is relevant to everyone because it measures the whole business.
It is a long-term customer satisfaction metric.
NPS is an effective measurement for future long-term interactions with your brand. It focuses on the reliability and referability of your product or service and not just on the experiences of each customer. By measuring how likely your customers are to refer your brand to others, you can gather relevant data that is not feasible from individual customer interactions.
It can be used as a real-time KPI.
Marketing- and revenue-based KPIs can serve as warnings against revenue issues, but they cannot provide answers as to why they happen. NPS can be used as a KPI to help in revenue management because it measures customer loyalty. Companies do not have to wait for financial reports to recognize that there is a problem because they can immediately notice if there is reduced customer loyalty and determine the reason for this.
NPS measures customer satisfaction and loyalty, making it an excellent indicator of a company’s future growth. It is most effective when used frequently and in a program with well-defined strategies and efficient systems. A high NPS score should never be a reason for you to be complacent. The goal should not only be to retain your customers, but to also convert your Detractors into Passives or Promoters.