NPS or the Net promoter score is an effective way to measure the customer experience from customer feedback. With passing days, more companies are showing interest in leveraging this potent tool to predict future growth.
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But how does company growth relate to NPS?
Most industries have seen a variation in the organic growth of around 20% to 60% by analyzing the Net Promoter Score (NPS). A net promoter leader often outperforms the competitors by a growth factor double as much. The crux is that a company’s NPS can efficiently indicate correlated organic growth measures where public data is available. This article strives to explore the causal relationship between Net promoter score and the future growth of an enterprise.
NPS and brand loyalty
The working process of the NPS is very straightforward. It measures brand popularity by asking for feedback from customers. The Net promoter system collects ratings from consumers to know how likely they are to recommend the services or products of the company to a friend or colleague. The survey result helps categorize the customers into three distinct groups, which focuses on finding which segment is loyal to the brand, who is indifferent, and which customers can harm the brand’s reputation. The first kind is generally the returning customer and adds to the company’s recurring revenue. While one can easily win the second category back by improving customer experience, the third type can undoubtedly damage the brand’s recall value.
Loyalty is imperative, but so is sustainability
Building a loyal consumer base is essential, but more significance must be given to improving customer experience through proper risk analysis and proactive decision-making. Surveys show that nearly 66% of customers prefer brands that promote sustainability. Leading brands like Nike, Nestle, and Unilever invest in waste reduction, while Adidas is focused on promoting an eco-friendly supply chain, etc.
While putting efforts to improve customer experience, factors like pricing, innovation, and cost management, are as necessary for sustainable growth.
NPS and growth – A caveat to keep in mind
When drawing a connection between Net promoter score and growth, one might think that getting a higher score can result in a better customer experience. But in reality, a higher score is not equivalent to success. NPS only measures the quality of the relationship between a brand and its customers. For this reason, a solid customer experience management plan must focus on building a high-quality human relationship to build a loyal customer base and boost promising organic growth for profitability.
NPS and the future of a company’s growth
#1. Prediction of revenue growth:
In a study regarding 2013 NPS and 2014-2016 revenue growth of the US airline industry, NPS shows to have a statistically significant relationship with future business metrics such as customer retention. Here the study validated NPS against historical or near-term revenue and metrics. Remember, a notable outlier got ignored in this study.
#2. Correlation with concurrent and historical measures of business developments:
Several investigations have established a strong correlation with business metrics such as revenue growth with NPS. For example, Reichheld’s study provides substantial evidence of concurrent validity. However, it does not make any claims about the company’s future growth.
#3. Not enough research
Eventually, we reach a point where making causal statements about NPS and revenue growth demands more investigations. NPS proves time and again to be a valid proxy for historical or current revenue in some industries but has limited potential in predicting future revenue potential as this customer retention information is mostly self-reported.
Substantial research can help establish temporal precedence and causation that NPS foregoes higher revenue. You can reach out to us to assist in conducting thorough research and finding the relation between the NPS and your company’s growth. The net promoter score can reveal a predictable series of consequences that follows a successful effort to improve customer experience. Also, consider NPS as a byproduct of your company’s growth-related variables, such as customer satisfaction, and not a result. The bottom line is that the higher the number of customers a company can get to recommend its services, the higher its NPS is going to be.