The NPS Consumer Loyalty Index – what is it?
NPS – what is it? This is a very trendy and popular topic now, and therefore I will pay close attention to it and talk about NPS in several posts.
This is the first one. In it we will talk about basic concepts, reveal the essence of the basic terms and, as they say, “synchronize watches” in order to know that in the future we will talk about the same thing.
One of the most important markers of consumer behavior is the NPS loyalty index (from the English Net Promoter Score) . It is an index for determining the commitment of consumers to a product or company (the index of willingness to recommend), which is used to assess the willingness to repeat purchases. This is a classic definition and can be found on Wikipedia.
The NPS is calculated according to the scale shown in the picture below. Please note that this is an 11-point scale (you need to choose grades from a range from 0 to 10). And measuring NPS on a 10-point scale is one of the most common mistakes.
In the picture, you see three groups of consumers. They must answer one question: ” How many points are you willing to recommend a company / product / service to your friends or relatives?” … Those who choose 9 and 10 points are categorized as “supporters”, those who give from 0 to 6 are critics, and those who choose 7 and 8 are neutral.
Let me explain the calculation of NPS by example. Let’s say we called 100 customers and asked them the same question. Ten of them chose the option from 0 to 6 points. Thus, these 10% are “critics”. In the same call, 30 people chose 9 and 10 points, that is, 30% are promoters. And the rest belong to the group of “neutral”, they put 7 and 8 points. And NPS is calculated here as “promoters” (in%) minus “critics” (in%). That is, in our case, it is 30% -10% = 20%.
The author and developer of the NPS method, Frederick Reicheld, spoke about it in 2003. A couple of years earlier, he had done research at over 400 companies in the United States. Reicheld studied how NPS can influence the development of companies. The main finding of the study was that the market average NPS across industries was 16%, while significantly more successful and larger companies such as eBay or Amazon had 75% NPS.
Subsequent studies by different companies in different countries have shown that it is this question that is most correlated with the subsequent consumer behavior in relation to repurchase. Those. the respondent who selected 10 points in response to the question “are you satisfied with your purchase?” is less likely to become a regular customer than the respondent who selected 10 points in response to the question “how likely are you to recommend our product to your friends, relatives and acquaintances? “
And it is in this, in my opinion, that the main advantage of the NPS index lies, and not in its magical properties according to recommendations and word of mouth. But many people forget about this advantage.
I will supplement the table with NPS values for different industries as I find such information. If you have data from verified and reliable sources, please send it to me. I would be very grateful to you.
What is known from NPS in Russian business? So, among b2b-clients of banks, the NPS index is 26%, and among “physicists” – 43%. Aeroflot’s NPS reaches 67%, while the average value for air carriers in the Russian Federation is 48%. The average NPS in the insurance industry is even less – 32%. ( collected from open sources and surveys of different companies conducted in 2014-2017 in different industries and methodologies ). The average NPS for automotive aftermarket was 57% in 2018 and 42% for parts (according to GiPA Russia research) .
About the Author
Alexander Gruzdev is an extraordinarily experienced consultant in business analytics. Since he was 14, Mr. Gruzdev was working in the market research industry and started several businesses including gambling organizations, retail shops, and real estate.
Since his first entrepreneurial endeavors began, he never quit market research – in fact, during the last 15 years Mr. Gruzdev held the positions of general manager and shareholder in this segment. His experience in global market intelligence spans over 20 countries including Europe, Russia, Asia, and the MENA region, for more than 100 different customers.