The NPS Effect: Transforming Customer Sentiment into Business Success

In today’s society, where word of mouth serves as a reliable means of spreading information about brands, understanding customer sentiment is paramount for businesses to thrive in a competitive market.

NPS steps in as a valuable metric to give businesses insights into customer satisfaction and loyalty by measuring the likelihood of customers recommending the business to friends, colleagues, or acquaintances.

But the impacts of NPS go beyond merely gauging satisfaction; it can predict business growth as the higher NPS score correlates to increased customer recommendations and repurchases.

Now, let’s explore the NPS effect and how we can harness the power of NPS to drive business success.

Understanding NPS

So, what is the Net Promoter Score definition?

NPS, or Net Promoter Score, is a business metric that gauges customer satisfaction and loyalty based on the likelihood of customers recommending a company’s products or services to others.

To calculate NPS, customers are initially asked the question: On a scale from 0 to 10, how likely are you to recommend the product/service/brand to a colleague or friend?

Following the collection of responses, customers are divided into three groups:

• Promoters (9-10): They are your company advocates, who are likely to spread positive word of mouth to promote your company.
• Passives (7-8): They hold an indifferent stance towards your company. They don’t actually negatively affect your brand reputation but don’t promote your brand, either.
• Detractors (0-6): They are dissatisfied customers who can damage your brand reputation through negative feedback and reviews and are the group most likely to churn.

With three groups of respondents, you can calculate your business NPS using the formula: subtracting the percentage of Detractors from the percentage of Promoters.

The NPS result ranges from -100 to 100.

If your score is positive, that means you have more promoters than detractors.

On the other hand, negative scores indicate the predominance of detractors, signaling an urgent need for your company to change strategies to retain customers.

While the median NPS score across organizations is +44, achieving scores above +70 is indicative of exceptional customer loyalty and advocacy. This indicates the importance of continuously improving customer experience to achieve superior NPS scores in the competitive landscape.

The NPS Effect on Business Growth

In this dynamic landscape, why is growth important to business?

Growth is a vital indicator of a company’s health and success. It shows the opportunities for the company to expand into new markets, diversify its lines of products and services, and, most importantly, increase profitability.

When considering strategies for growth, understanding customer sentiment becomes crucial. But what does NPS measures is not merely customer sentiment; it is a valuable tool that provides insights into businesses’ operational effectiveness.

Predictor of Sales Growth and Customer Loyalty

Because customer sentiment is such a considerable driving force for business growth, understanding and predicting how customers feel about a company’s products or services is essential.

Companies with high NPS scores tend to have higher sales growth as satisfied customers may make repeat purchases and refer your business to others.

Reliable research by the Bain teams delved into the correlation between relative Net Promoter Scores and growth.

In the majority of industries, Net Promoter Scores accounted for approximately 20% to 60% of the differences in organic growth rates observed among competitors. Typically, the leading Net Promoter in an industry experienced growth more than twice that of its competitors.

These results indicate that a company’s NPS is a good indicator of its future growth potential. However, it’s worth noting that the strength of this relationship varies depending on several factors and is strongest when:

• In industries with a significant number of competitors, where customers have ample choices available to them.
• In sectors where network effects are minimal, allowing customers to switch between providers easily.
• In mature industries where products or services have been widely adopted and used by the market.

These findings, as a result, underscore the importance of leveraging NPS insights to understand and find ways to improve customer experience and loyalty, serving as valuable guidance on how to accelerate business growth.

Correlation Between NPS and Revenue

Some research also highlights how effective NPS is and how it can make a positive impact on revenue generation.

For instance, Research by CustomerGauge revealed that even a marginal improvement in the NPS score can result in substantial revenue gains. A rise of 10 or more points in the Net Promoter Score (NPS) is associated with a 3.2% increase in upsell revenue.

However, it’s essential to recognize that while NPS and revenue are correlated, a high NPS score alone does not guarantee revenue generation. It requires business efforts to make changes to improve the NPS score to translate into higher revenue streams.

Real-world Success Stories

In applying practical NPS surveys, numerous companies have achieved remarkable success in driving growth and enhancing customer satisfaction, which helps their businesses stand out in competitive industries.

HotelTonight

HotelTonight is a leader in leveraging NPS surveys to enhance customer sentiments as well as enhance their business performance in the hospitality industry.

Founded in 2010, their app offers users the convenience of finding and booking hotel rooms on the same day or up to a week in advance. 

In order to enhance their overall guest satisfaction and identify areas for improvement in their services, and facilities, they began conducting NPS surveys and collecting real feedback from customer service journeys.

Consequently, after all the effort spent on documenting feedback, addressing problems, and enhancing their features, they achieved an NPS of 75 – twice the industry average score.

Gaining this remarkable NPS score was not a success overnight; it was the result of a long process as HotelTonight continuously tracked NPS over time, identified areas for improvement, and tailored their strategies to enhance guest satisfaction.

Kard

Kard is a French fintech startup that developed a mobile app to help teens manage their money and teach them about finances while also allowing parents to oversee their spending and provide guidance.

The company successfully enhanced its rating on reviewing platforms such as Trustpilot or Google by using NPS surveys.

Taking advantage of receiving 1000 answers per day using NPS surveys, they then directed those who rated them highly (9 or 10) to leave a review online.

This strategy helped them boost their Trustpilot rating from 4.2 to 4.8, showcasing the effectiveness of leveraging positive feedback to enhance their online reputation.

Furthermore, they set up NPS surveys at different touchpoints along the app’s user journey to measure customer satisfaction. By strategically implementing these NPS surveys, they know what users like and where they can make improvements, ultimately enhancing their app’s user experience.

Strategies for Improving NPS

Similar to other success metrics, optimizing NPS requires you to apply strategic approaches and quantify performance to drive improvement and growth.

Key strategies include:

• Timing Surveys Properly: You should ensure that NPS surveys are sent at appropriate times in the customer journey to capture feedback when it’s most relevant. For example, sending surveys after some major touchpoints can provide valuable insights into customer sentiment at critical moments.
• Enhancing Customer Experience: After collecting feedback at different touchpoints of the customer journey, you can pinpoint improvement areas and implement changes to enhance overall customer satisfaction.
• Closing the Feedback Loop: Research shows that closing the feedback loop can boost customer retention by 8.5%. Therefore, you should actively engage with customers by acknowledging their feedback and adapting changes to show your dedication to continuous improvement.

Conclusion

NPS serves as more than just a business kip; it’s a pivotal tool for strategic business growth and customer-centric decision-making.

By understanding and leveraging NPS surveys effectively, along with NPS management, businesses can gain invaluable insights into customer sentiment and satisfaction levels.

These valuable understandings help business refine their strategies, enhance customer loyalty, improve products and services, and ultimately, drive sustainable growth.