Study Shows Very Strong Connection Between NPS and Customer Loyalty

Julian Aldridge, VP, Brand Evangelism and Activation, Charles Schwab & Co., explained to Loyalty360 earlier this year that he is a huge believer in Net Promoter Score methodology because it’s such a simple metric.
“I’m a huge believer in Net Promoter Score methodology because it’s such a simple metric: Do your existing clients recommend you or not?” Aldridge said. “We call it Client Promoter Score at Schwab, but it’s basically NPS. I think it’s one of the best tests to see if a business is doing things right.”

According to a new research report, “"Economics of Net Promoter Score, 2016,” released by Temkin Group, Net Promoter Score (NPS) has become a popular customer experience metric. NPS classifies customers into one of three categories­—promoters, passives, and detractors—based on their likelihood to recommend the company to friends and colleagues.

What’s more, the report revealed a very strong connection between NPS and customer loyalty across 20 industries. An examination of 291 companies in the study found that NPS was highly correlated to the likelihood of a customer to purchase more from a company (R = 0.81).

The report was based on a study of 10,000 U.S. consumers.

When compared with detractors (customers who are unlikely to recommend the company), the research shows that promoters (customers who are highly likely to recommend the company) are more than five times as likely to repurchase from companies, more than seven times as likely to forgive companies if they make a mistake, and almost nine times as likely to try new offerings from companies. Our research also shows that promoters recommend a company to an average of 3.5 people.

“Promoters are significantly more loyal, so most businesses would do well to create promoters and decrease detractors,” said Bruce Temkin, Managing Partner of Temkin Group.

Here are some additional findings from the research:

The average loyalty of promoters across 20 industries is as follows: 92% are likely to purchase more, 67% are likely to forgive the company if it makes a mistake, and 62% are likely to try a new product.

The average loyalty of detractors across 20 industries is as follows: 18% are likely to purchase more, 9% are likely to forgive the company if it makes a mistake, and 7% are likely to try a new product.

Internet service providers, insurance carriers, and computers have largest gaps between promoters’ and detractors’ likelihood to purchase.

Utilities and computers have largest gaps between promoters’ and detractors’ willingness to forgive a company.

Appliances and auto dealers have largest gaps between promoters’ and detractors’ willingness to try new products.

The report includes loyalty levels for promoters, passives, and detractors across 20 industries: Airlines, auto dealers, banks, computer makers, credit card issuers, fast food chains, grocery chains, health plans, hotel chains, insurance carriers, Internet service providers, investment firms, major appliance makers, parcel delivery services, rental car agencies, retailers, software firms, TV service providers, utilities, and wireless carriers.

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