NPS Index. Consumer Loyalty Index

The issue of assessing the level of trust, disposition, satisfaction, and overall consumer loyalty remains a significant challenge. The main question is how can one obtain data for such assessments and how can feelings and attitudes be quantified?

Let's delve into the details using NPS surveys as an example.

What is the NPS Index?

NPS (Net Promoter Score) is a consumer loyalty index that characterizes the degree of trust or commitment of the target audience to a brand, company, specific manufacturer, trade mark, etc.

Promoter is a person who helps promote certain products or services. Essentially, this person is involved in advertising, usually on a voluntary basis or under mutually beneficial terms.

Loyalty is favorability or commitment to something.

Thus, NPS is an indicator (a number or score) that shows the willingness of customers to recommend and help promote the products or services of a specific business. Not clear?

NPS is an index of the ability to recommend.

Loyal customers are more likely to make repeat purchases and orders, serve as brand advocates (defending it, highlighting advantages, encouraging others to purchase), and may recommend a specific brand to their acquaintances and friends.

The metric was developed by Fred Reichheld, a renowned business consultant and author of educational books on the topic. He also conducted studies that confirmed the impact of NPS on businesses.

So far, there is no practical research in academic circles that confirms the correlation between NPS and long-term sales growth. However, the connection between NPS, reputation, and general attitude towards the brand is evident and doesn't need proof.

Many online sources refer to a study by RJMetrics. Recently, the company ceased operations – it was acquired by Adobe Corporation. Therefore, the results are no longer publicly available.

Other studies mainly confirm that loyal customers spend significantly more on a company's products than other consumer categories. Therefore, it makes sense to stimulate an increase in the share of loyal customers.

Methodology for Calculating the Loyalty Index

Simply put, the NPS index is calculated as the difference between the proportion of loyal customers and the proportion of detractors (critics).

Loyal customers are those who rated the survey 9 or 10 out of 10 possible points.

Critics (unloyal customers) are those who rated 6 or lower.

Loyalty Index Formula:

• NPS = % of promoters – % of critics

Or

• NPS = (Number of promoters – Number of critics) / Total number of respondents * 100%

Neutral customers, those who rated 7 to 8 points, are only included in the calculation to get the total number of respondents.

Practical Example of Calculating the NPS Index

From the survey, the following data was obtained:

• 102 customers gave a score of 9-10 points (brand promoters).
• 85 customers gave a score of 7-8 points (neutral users).
• 35 customers gave a score of 6 points or less (brand critics).

Total number of respondents: 102+85+35 = 222 people.

Percentage of promoters: 102/222 * 100% = 45.95%

Percentage of critics: 35/222 * 100% = 15.77%

NPS (Consumer Loyalty Index): 45.95% – 15.77% = 30.18%

Note: The final NPS can take on both positive and negative values.

How to Properly Conduct NPS Surveys

To assess the loyalty index, the same question is always asked:

"How likely are you to recommend NNN to your friends or acquaintances?"

Instead of NNN, you can use a brand, trade mark, company name, specific product, or service.

It's essential to specify the conditions for rating:

• 1 point – the lowest rating, indicating the customer would definitely not recommend anything.
• 10 points – the highest rating, corresponding to "will definitely recommend."

NPS survey data will be uninformative if you do not use a second question:

"Please specify the reason for your rating"

The response should be given in free form. For this, a comment input field can be used in the survey builder. In a paper questionnaire, several lines can be provided for writing a response.

NPS surveys can be conducted for specific user groups or the general database, but often questions about the possibility of recommendation are asked immediately after contact with the client: at the moment of transaction completion, after placing an order/request, etc.

Notably, NPS surveys are quite simple, so they can be conducted in various formats using different channels: SMS, messengers, email newsletters, online forms and surveys, telephone calls, etc.

Briefly About Trust and Stability of the NPS Rating

Since only the most active part of the audience is sampled, the stability of the rating can vary significantly.

Moreover, many customers, even after contact with the company/brand, often ignore the NPS survey form.

As a result, the coverage can be quite low.

To enhance the desire to express their opinion, additional incentives (persuasion, lead magnets, etc.) can be used, but this may affect the objectivity of the assessment.

The most common mistakes that deter the audience from participating in NPS surveys include:

• Overly complex formulations (it's better to use the classic question provided above).
• The answer option "I don't know" (this should not be an option).
• Lack of a legend for the scale (respondents should understand which value corresponds to a negative reaction and which to a positive one).
• Absence of a second question for inputting comments. Without genuine user responses, it will be impossible to understand the reasons for low or neutral ratings, and thus, company management will not be able to correct the situation.

Analysis – What NPS Survey Result Should Be Considered Satisfactory?

As mentioned above, the NPS index can range from -100 to +100 percent.

Generally, only positive values are considered satisfactory – when the proportion of promoters is higher than that of critics.

Excessively low values (including negative ones) are a warning sign for the marketing department. Something is not going right with the promotion of the product, service, brand, or company.

An important aspect is to monitor changes in the NPS index over time, for example, by individual calendar months or quarters. For long-term planning – from year to year.

There is no ideal NPS value. The rating in each specific situation can vary depending on the niche, the selected audience segment, the conditions of the last contact (for example, the rating is given after dealing with a complaint), etc.

Moreover, the company (brand) should aim to continuously increase the NPS value (from period to period). This would indicate an increase in the proportion of promoters (those capable of recommending the product/service to others).

How to Improve NPS?

It's important to understand that the ultimate goal of conducting a survey is not just to produce an assessment or optimize the NPS index (as one of the KPIs), but to obtain real feedback from the audience and take action in case of significant shortcomings.

The NPS index is often used for a general evaluation of a company's actions, for example, in developing or testing the relevance of a new strategy.

Improving the NPS score can only be achieved by addressing the shortcomings and problems that customers did not indicate. That is why it is crucial not to limit the survey to just one question about the possibility of recommendation. It is essential to collect comments on why the consumer gave a particular rating.

This creates a kind of gamification of the feedback process: first the rating, then the review.

NPS-Related Metrics

Alongside the NPS index, other metrics are also used in business:

• CSI – Customer Satisfaction Index (simply an average rating of the relationship to something).
• CLI – Loyalty Index (based on three special questions).
• CES – Customer Effort Score (assesses the experience of using the product).
• CSat – another satisfaction index (reflects the proportion of positive ratings).

Do not confuse NPS surveys with eNPS. The latter are used only to assess employee loyalty and have no relation to customers or the audience.

How to Launch Your Own NPS Survey?

You can use the survey builder SurveyNinja. You will need to create just two types of questions:

• with a rating on a 10-point scale (you can use a 'scale', 'slider', or 'rating with icons');
• with comment input (handled by a standard input field, which can be expanded or have a character limit set if necessary).

The survey can be integrated into a website, for example, in a popup window, or you can use direct links to send them in SMS or email messages, share them on social networks and in messengers.

A summary of responses and statistics will be displayed in the management panel. You can filter data for specific time periods or export it for more detailed analysis using external software (in tabular form).