How the Net Promoter Score Helps You Benchmark Customer Loyalty
You‘ve probably been asked the question yourself many times: "On a scale of 0 to 10, how likely are you to recommend us to a friend or colleague?" It may seem simple, but that one question is the basis of one of the most important metrics in business – the Net Promoter Score (NPS).
The Origins of NPS
NPS was pioneered in 2003 by loyalty expert Fred Reichheld of Bain & Company, in collaboration with Satmetrix. Reichheld had spent years researching customer loyalty and was determined to find a way to quantify it. Through analyzing thousands of customer interviews, he discovered that the likelihood to recommend question was the single best predictor of customer behavior and business growth.
In a seminal Harvard Business Review article, Reichheld introduced NPS to the world, boldly stating that it was "the one number you need to grow." NPS quickly caught on and is now used by over two-thirds of Fortune 1000 companies.
How NPS Is Calculated
NPS segments your customers into three groups based on their likelihood to recommend you on a 0-10 scale:
- Promoters (9-10): Loyal enthusiasts who will keep buying and refer others
- Passives (7-8): Satisfied but unenthusiastic customers who are vulnerable to competitive offerings
- Detractors (0-6): Unhappy customers who can damage your brand through negative word-of-mouth
Your NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The score ranges from -100 (all detractors) to +100 (all promoters).
For example, if you surveyed 100 customers and got 40 promoters, 40 passives, and 20 detractors, your NPS would be:
40% promoters – 20% detractors = +20 NPS
The Business Impact of NPS
But NPS isn‘t just an academic exercise – it has real implications for your bottom line. Reichheld‘s research showed that in most industries, NPS leaders outgrew their competitors by at least 2X.
A study by Temkin Group found that compared to detractors, promoters are:
- 4.2X more likely to buy again
- 5.6X more likely to forgive a company after a mistake
- 7.2X more likely to try a new offering
Furthermore, a Bain analysis showed that in financial services, a 5% increase in customer retention can boost profits by 25% to 95%. And data from Satmetrix reveals that an industry‘s NPS leader outgrows its competitors by 2.3X on average.
NPS Benchmarks by Industry
So what constitutes a "good" NPS? It varies widely by industry. Here are the latest average NPS scores in the US according to NICE Satmetrix:
| Industry | Average NPS |
|---|---|
| Department/Specialty Stores | 58 |
| Tablet Computers | 56 |
| Auto Dealers | 48 |
| Brokerage/Investments | 45 |
| Laptops | 44 |
| Grocery/Supermarkets | 39 |
| Home/Contents Insurance | 38 |
| Hotels | 37 |
| Online Entertainment | 36 |
| Credit Cards | 35 |
| Shipping Services | 35 |
| Banking | 34 |
| Car Insurance | 32 |
| Online Travel Agencies | 32 |
| Cellphone Service | 30 |
As you can see, retail and product categories tend to score higher, while financial services and telecommunications bring up the rear. The key is to benchmark against your competitors and strive for continuous improvement.
The State of Verizon‘s NPS
Speaking of the telecommunications industry, let‘s zoom in on one major player – Verizon. The largest wireless carrier in the US, Verizon has over 120 million subscribers and $128 billion in annual revenue. But how loyal are those customers?
Verizon‘s most recently published NPS was 7 in 2019. While that might seem low, it‘s actually not far off the wireless industry average of 30. However, Verizon significantly lags its top competitor T-Mobile, which leads the pack with an impressive NPS of 43.
Here‘s how the big four US wireless carriers stack up on NPS over the past few years:
| Carrier | 2017 | 2018 | 2019 |
|---|---|---|---|
| T-Mobile | 36 | 41 | 43 |
| Sprint | 16 | 24 | 25 |
| AT&T | 15 | 22 | 24 |
| Verizon | 5 | 6 | 7 |
Sources: T-Mobile, Sprint, AT&T, Verizon
To be fair, Verizon has improved its NPS each year, but it will need to accelerate that rate of improvement to catch up to T-Mobile. In its Q4 2019 earnings call, Verizon‘s CEO shared that the company is "keenly focused" on improving NPS and has implemented a company-wide NPS training program.
Strategies to Boost NPS
So how can Verizon – or any company for that matter – go about improving its Net Promoter Score? Here are some proven tactics:
-
Make it a C-suite priority. At USAA, which consistently ranks at the top of NPS benchmarks, CEO Wayne Peacock calls NPS "one of our most important metrics." Leadership buy-in is critical.
-
Empower the frontline. Give your customer-facing employees the tools and authority they need to go the extra mile to delight customers. Ritz-Carlton famously allows any employee to spend up to $2,000 to solve a guest issue without manager approval.
-
Close the loop. Don‘t just collect NPS feedback – act on it. Follow up with every customer, thank them, and share how you‘re addressing their concerns. Digital marketing agency Wpromote automated its NPS feedback process and improved its score by 16 points in a year.
-
Engage your promoters. Turn your happiest customers into brand evangelists. Offer special perks, referral incentives, and insider access. Dropbox has grown to over 600 million users, largely through word-of-mouth from its passionate promoter community.
-
Analyze root causes. Go beyond the top-line number and dive into key drivers of NPS like customer support, product experience, pricing, and brand perception. Airlines like Southwest use detailed NPS analytics to guide strategic priorities.
NPS Success Stories
Companies that have embraced NPS have seen remarkable results. Here are a few examples:
- Apple consistently achieves an industry-leading NPS of 72 for its smartphones through its relentless focus on customer experience and product innovation.
- USAA, the financial services company that exclusively serves military families, has an impressive NPS of 75, thanks to its seamless omnichannel experience and excellent customer service.
- Costco has an NPS of 74, reflecting its wildly loyal customer base. The wholesale club is known for its incredibly liberal return policy and pays employees well above the retail average.
- Peloton, the at-home fitness company, has an NPS of 91. It has cultivated a cult following through delivering a world-class interactive experience and fostering a vibrant social community.
Of course, transforming your Net Promoter Score doesn‘t happen overnight. It requires a sustained, coordinated effort across the entire organization. But as these success stories show, the payoff of turning detractors into promoters and promoters into evangelists is well worth it.
The Future of NPS
Since its introduction in 2003, Net Promoter Score has become a ubiquitous business metric and proven predictor of growth. But some have argued that NPS is too simplistic and doesn‘t capture the full nuance of customer loyalty.
Alternatives and enhancements to NPS have been proposed, such as the Customer Effort Score, which measures how easy it is for customers to get their needs met, and the Temkin Loyalty Index, which combines likelihood to recommend with likelihood to repurchase and trust.
Other experts suggest augmenting NPS with more qualitative customer experience metrics, such as sentiment analysis of review text and contact center interactions. As machine learning advances, companies will be able to glean richer insights from the vast amounts of unstructured feedback they collect.
But at its core, NPS remains a powerful, intuitive metric. By asking one simple question, it gets to the heart of customer loyalty and advocacy. And in a world where customer expectations are higher than ever, turning customers into promoters is an essential ingredient for sustainable growth.
Verizon and its competitors face a challenging market, with rising expectations around network quality, price, and service. Actively monitoring and improving NPS can give them the edge in both retaining and attracting subscribers. The same goes for any company in any industry – those that achieve high loyalty will win the future.
If you‘re not yet measuring Net Promoter Score, now is the time to start. Survey your customers, calculate your baseline NPS, and compare it to industry benchmarks. More importantly, commit to continuously gathering and acting on the feedback. Every closed loop is an opportunity to turn a passive into a promoter.
Earning customer loyalty isn‘t easy, but the Net Promoter system gives you a powerful way to quantify, track, and improve it. In the age of empowered customers, a high NPS isn‘t a luxury – it‘s a necessity. The companies that recognize that and commit to raising their NPS will be the ones we‘re all recommending in the years to come.
