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Does NPS Actually Work? New Research on the Impact of Net Promoter Scores

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Does NPS Actually Work? New Research on the Impact of Net Promoter Scores

Net PromoterⓇ  Scores have been causing waves since they first emerged in 2003. In a now-famous piece for the Harvard Business Review, Fred Reichheld caused the first ripples by claiming his simple brand loyalty system could predict a company’s growth better than more complex customer satisfaction models. It has since been adopted by giants like GE, Apple, and American Express. But are they right?

We took a closer look by surveying 607 businesses about their approaches to measuring customer satisfaction. Using SurveyMonkey Audience, we wanted to see if growth and future prospects could really be tied to something as innocuous as one’s method for measuring customer satisfaction.

But first thing’s first!

The NPS is known for being a simple system, but business success can’t be as simple as asking the right questions, can it? Satmetrix (who along with Bain & Co. are the keepers of the Net Promoter System), admits as much:

“NPS does not lead to success. Companies must follow an associated discipline to actually drive improvements in customer loyalty and enable profitable growth.”

So, sadly, hard work still has something to do with success. Even though other research has shown you can improve customer loyalty just by asking for feedback, you’ll need to actually listen to your feedback to make gains in the long run. But who uses NPS and how successful are they?

On to the results…

We should start by noting that 59% of companies take the time to measure customer satisfaction, and larger companies are much more likely to measure customer satisfaction:     company size breakdown

Because measuring satisfaction at different touchpoints can require different tactics, 57% of the companies who measure satisfaction use more than one method. In terms of how often companies measure satisfaction, it looks like they’re either constantly in contact with customers (60% measure satisfaction at least once a month), or prefer something more like an annual checkup: 29% report measuring satisfaction four or fewer times a year.

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What’s the deal with Net Promoter Scores?

While the Net Promoter System is technically designed to measure brand loyalty, 86% of the people we talked to use it to measure of customer satisfaction. Hair splitting aside, Reichheld’s research shows that companies with high NPS scores are twice as likely to be successful as companies with lower scores. In our survey, we support for the notion that NPS is a valuable tool. But only 10% of our respondents had heard of NPS and just over 5% actually use it. However, 71% of those who use NPS say it is “very valuable” to their company (compared to 53% of respondents who use other methods).

We also saw that most companies ask additional questions in their NPS surveys. Since the NPS question only asks whether someone would recommend a business, it doesn’t get at the specifics of why someone would or wouldn’t recommend you. All in all, it’s not too surprising businesses would want to supplement their NPS scores with more specific information about their customers’ experience.

So who is most successful?

Our findings echoed those of Fred Reichheld: 81% of companies who use NPS see themselves as very or extremely successful, compared 62% of those who don’t. The results were similar, but not quite as convincing when we looked at all companies who measure customer satisfaction as a group. NPS and Success

But how people define success can be a little arbitrary, so we asked businesses about something a little more quantifiable—profits. Once again, NPS came out on top, with companies who use NPS a third more likely to have growth rates over 10% a year: NPS and Profits

There was, however, one interesting wrinkle. Companies who use NPS were also most likely to have profits decrease by over 25%. This correlation could mean that troubled companies (who tend to be bigger if they use NPS) step up their efforts to understand what’s going wrong. But ultimately, it’s unclear what’s causing this low number.

Looking to the future, companies who measure customer satisfaction also tend to be much more optimistic about their profits next year than those who don’t.  Any way you look at it, measuring customer satisfaction is good business, and using NPS may give you an additional edge. See the original post on SurveyMonkey.com. Get the Feedback eGuide

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