Term: "Net Promoter Score (NPS)"
Definition
Net Promoter Score (NPS) is a widely used management tool that serves as a gauge of customer satisfaction and loyalty by measuring the likelihood of customers to recommend a company's product or service to others. It is based on a single question survey that asks customers to rate, typically on a scale from 0 to 10, how likely they are to recommend the company to friends or colleagues. Based on their ratings, respondents are categorized into three groups: Promoters (score 9-10), who are loyal enthusiasts likely to fuel growth through positive word-of-mouth; Passives (score 7-8), who are satisfied but unenthusiastic customers vulnerable to competitive offerings; and Detractors (score 0-6), who are unhappy customers who could potentially damage the brand and impede growth through negative word-of-mouth.
The NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters, resulting in a score that can range from -100 (if every customer is a Detractor) to 100 (if every customer is a Promoter). This score provides businesses with a clear and easily interpretable metric to assess and improve their customer experience and loyalty programs. Companies often use NPS as a benchmark to measure their performance over time and compare it against industry standards. While NPS offers valuable insights into customer loyalty and satisfaction, it is most effective when used alongside other metrics and qualitative feedback to gain a comprehensive understanding of the customer experience.