Research Finds 'Very High' Correlation Between Customer Loyalty and NPS

Contributor: Zarina de Ruiter
Posted: 06/18/2015
Customer Loyalty and NPS
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The true value of Net Promoter Score is widely discussed within CX and new research has found that there is indeed a strong relationship between the metric and customer loyalty.

Net Promoter Score (NPS) is a popular customer experience metric, but its value has been questioned within the industry. Sian O'Shea, Head of Customer relations at TalkTalk, said at the recent Customer Experience Exchange for Telecoms conference that NPS is "widely used but also widely misused".

She explained: "Lots of companies favour NPS as it's simple to measure. Where it's misused, or not used in sufficient detail, is by not going back and looking at trends to understand why customers in certain areas give negative feedback. There is a lack of follow up. One of the challenges is root-cause insight."

New research by Temkin Group, based on a study of 10,000 US customers, found that while the value of NPS is perhaps a hot topic of discussion within the CX industry that there is definitely a "very high" correlation between the score and customer loyalty across the 20 industries surveyed.

The metric classifies customers into one of three categories-promoters, passives, and detractors-based on their likelihood to recommend the company to friends and colleagues.

When compared with detractors, the research founds that promoters (those who are the most likely to recommend) are five times as likely to repurchase from companies, almost six times as likely to forgive companies if they make a mistake, and almost eight times as likely to try new offerings from companies.

Bruce Temkin, Managing Partner of Temkin Group, said: "Net Promoter Score identifies segments of customers who have distinctly different levels of loyalty, with promoters being the most loyal group by far."

Other key findings include:

  • The difference between the likelihood of promoters to repurchase from a company and detractors to repurchase from a company ranges from 78 per cent for computer & tablet makers down to 60 per cent for supermarkets.
  • The difference between the likelihood of promoters to forgive a company and detractors to forgive a company ranges from 62 per cent for computer and tablet makers down to 46 per cent for airlines.
  • The difference between promoters' appetite for new products and detractors' appetite for new products ranges from 59 per cent for rental car agencies down to 48 per cent for both banks and parcel delivery services.
  • The difference between promoters' recommendation rate and detractors' recommendation rate ranges from 46 per cent for TV service providers down to 29 per cent for parcel delivery services.

Do you use NPS to measure customer loyalty? How valuable have you found the metric within your company? We'd love to hear your thoughts, either on social media or contact the editor on Zarina.deRuiter@iqpc.com.

zarina
Contributor: Zarina de Ruiter