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In the words of Bill Gates, "Your most unhappy customers are your greatest source of learning." This sage business advice underpins the principle of the Net Promoter Score (NPS)—a customer loyalty metric thought to be a key indicator of a company's relational health and future growth. Increasingly, Fortune 500 executives view NPS as an essential part of their company's Performance Management strategy. This article delves into the composition of NPS and shares best practices for its effective usage as part of a broader Strategic Management repertoire.

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Flevy Management Insights: Net Promoter Score

In the words of Bill Gates, "Your most unhappy customers are your greatest source of learning." This sage business advice underpins the principle of the Net Promoter Score (NPS)—a customer loyalty metric thought to be a key indicator of a company's relational health and future growth. Increasingly, Fortune 500 executives view NPS as an essential part of their company's Performance Management strategy. This article delves into the composition of NPS and shares best practices for its effective usage as part of a broader Strategic Management repertoire.

For effective implementation, take a look at these Net Promoter Score best practices:

Explore related management topics: Performance Management Customer Loyalty Best Practices

The Importance of NPS in Strategic Management

The Net Promoter Score is a straightforward method of gauging customer sentiment. Ask customers one simple question: "On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?" Those who respond with a 9 or 10 are "Promoters", 7 or 8 are "Passives", and 0 to 6 are "Detractors". The actual NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

The simplicity and directness of the NPS system make it uniquely actionable: it gives companies the insight they need to improve, and the feedback necessary for actionable Change Management. According to a McKinsey study, a navigation of the customer journey that leads to unsatisfactory experiences can decrease customer-satisfaction scores by almost 20%—a clear risk to future revenue.

Explore related management topics: Change Management Customer Journey

Optimizing NPS for Business Transformation

Effective use of NPS requires more than just collecting data—it necessitates a proactive approach to Strategy Development. Solicit feedback through various touchpoints, analyze the results and correlate them with other data, such as customer purchase history or demographics. This allows for more precise targeting of improvements.

Ultimately, aiming for an ever-increasing NPS should be woven into a company's Culture of continuous improvement and Operational Excellence. Regularly updating staff training and enhancing service offerings based on customer feedback would contribute to this aim.

Explore related management topics: Operational Excellence Strategy Development Continuous Improvement

Linking NPS to Financial Performance

While there has been some debate about the correlation between NPS and financial performance, a study by Bain & Company found a strong correlation between high NPS scorers and companies with superior revenue growth. Companies that prioritize customer loyalty and use NPS as a tactic within a broader Digital Transformation effort can often outperform rivals.

Explore related management topics: Digital Transformation Revenue Growth

Best Practices for NPS

  • Don't treat NPS as a standalone metric. It's best used as part of a larger, comprehensive dashboard of customer-centric metrics.
  • Close the loop. Always follow up with Detractors to understand their concerns and devise solutions. This promotes trust, reduces churn, and might convert them into Promoters.
  • Train your team. Ensure your staff understand the NPS procedure and its importance to the company's growth. This boosts staff morale and productivity.

Critical Consideration in NPS Application

One critical insight provided by a MIT Sloan Management Review is the "diminishing returns" effect. The research found that while increasing customer satisfaction leads to decreased customer churn initially, there comes a point where further increases in satisfaction do not result in lower churn. This is an essential paradigm to understand and employ strategically in relation to NPS to ensure that efforts and resources are deployed in the most effective manner.

Gaining a deep, data-informed understanding of customers via metrics like NPS can be a gateway to greater Business Transformation, Operational Excellence, and ultimately, superior financial performance. Keeping the customer central is critical now, more than ever, in a landscape that is increasingly competitive and rapidly evolving.

Explore related management topics: Business Transformation Customer Satisfaction

Net Promoter Score FAQs

Here are our top-ranked questions that relate to Net Promoter Score.

How does NPS correlate with actual business growth and profitability in various industries?
NPS is a key predictor of business growth and profitability, with its impact varying across industries, necessitating industry-specific strategies and integration with broader Strategic Planning and Performance Management efforts. [Read full explanation]
How is the increasing importance of sustainability and corporate social responsibility affecting NPS scores across industries?
The growing consumer demand for sustainability and Corporate Social Responsibility (CSR) is significantly enhancing Net Promoter Scores (NPS) across industries by influencing purchasing decisions and brand loyalty. [Read full explanation]
What role does social media play in influencing NPS scores, and how can companies leverage social media feedback to improve their NPS?
Social media significantly influences NPS by amplifying customer feedback and providing real-time insights, requiring companies to adopt Strategic Planning and proactive engagement to improve customer satisfaction and loyalty. [Read full explanation]
How can integrating NPS feedback into product development cycles enhance customer satisfaction and loyalty?
Leverage NPS Feedback in Product Development cycles to drive Innovation, enhance Customer Satisfaction, and increase Loyalty, fostering a culture of Continuous Improvement. [Read full explanation]

Related Case Studies

NPS Strategy Development for Telecom in Competitive Landscape

Scenario: A telecom company, operating in a highly competitive market, is grappling with stagnating Net Promoter Scores (NPS) despite increased investment in customer service and experience.

Read Full Case Study

NPS Strategy Reinvention for a Forestry Products Leader

Scenario: A top-tier firm in the forestry and paper products sector is grappling with stagnating Net Promoter Scores (NPS) despite consistent product quality and customer service investments.

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Net Promoter Score Advancement for Food & Beverage Sector

Scenario: A firm in the food & beverage industry is facing challenges with stagnant or declining Net Promoter Scores (NPS) despite increased investment in customer experience initiatives.

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Net Promoter Score Analysis for Wellness Brand in Competitive Market

Scenario: A leading wellness brand, operating in the highly competitive health supplement sector, has been facing stagnation in customer loyalty and referral rates despite a significant investment in customer service.

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Net Promoter Score Analysis for Aerospace Defense Firm

Scenario: An aerospace defense company is facing challenges with a stagnant Net Promoter Score (NPS) despite recent investments in customer experience improvements.

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Net Promoter Score Improvement Initiative for a Leading Telecommunication Company

Scenario: A multinational telecommunication company is grappling with a stagnant Net Promoter Score (NPS), indicating that customer loyalty and satisfaction are not improving.

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