Net Promoter Score (NPS) is often marketed as a customer retention tool. Companies put a lot of resources into improving their score, hoping that new customers and improved customer retention will grow the company a considerable amount. While it is a widely accepted tool, one must wonder if it does affect customer loyalty. NPS splits clients into three groups: Promoters, Passives, and Detractors. It then generates a score: NPS = Promoters – Detractors. The promoters are often viewed as loyal clients. Growing your score means to increase the number of promoters, which would seem to improve retention. So why focus on retention? Bain reports that 68% of B2B executives claim their clients are less loyal than they have previously been. There is a clear need to improve their strategies and grow loyalty
Why NPS Is A Good Metric
The Harvard Business School found that improving retention by just 5% could have a major impact on revenue. This means that every improvement, no matter how small, can have a delightful impact. Net Promoter Score certainly has the potential to boost loyalty and expand revenue. Bain research found that NPS does correlate to share of wallet. This research also claims that Promoters for B2B companies lifetime value is 3 to 8 times greater than detractors. The promoters are cheaper to satisfy, spend more money with your company, and stay longer.
It May Not Be The Best Metric
The Marketing Productivity Blog investigated a recent study from the Social Science Research Network that found that the accuracy of predicting retention by NPS varies a lot per industry. NPS can be good at predicting retention if your company is in the right field. Even if you are in the right industry, it still may not be the best solution. MIT Sloan reported that repurchase intention is a better way to predict customer loyalty than recommendation intention. In an attempt to predict the power of customer loyalty a 2010 Harvard Business Journal study compared customer satisfaction (CSAT), the Net Promoter Score (NPS), and the Customer Effort Score (CES). They found that when it comes to predicting retention, NPS ranks #2 behind CES. This spurs some questioning of how good NPS is at helping your business grow loyalty.
We previously highlighted that the amount promoters are a good way to gauge customer retention. Promoters are likely to stay longer and give more money to your company. The issue is that your NPS score could be wrong. PR Newswire explained in a ForeSee study that stated Detractors in an NPS study are often overrepresented by 299%. Overstated detractors could make a company focus time and money in an area that isn’t a large issue.
Every Little Bit Helps Customer Loyalty
There is a higher demand for customer loyalty. It’s supported by the understanding that even a little increase in client retention can generate an immense amount of money. Net Promoter Score can assist in the process of enhancing loyalty. It is not the only solution and has some cons that come along with it’s benefits. While being a helpful asset in your loyalty strategy, NPS may not fit everyone in a B2B world. Look for tools that take NPS to the next level, and drive actionable insights that show a direct impact on your bottom line.