What is the Net Promoter Score?
The Net Promoter Score (NPS) is a popular metric designed to measure customer loyalty. It was developed through collaborative efforts by Fred Reichheld.
It is calculated based on responses to a single survey question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Respondents give a rating on a scale of 0 to 10, where 0 means “Not at all likely” and 10 means “Extremely likely.”
The formula to calculate NPS is as follows:
Categorise respondents into three groups:
Promoters (score 9-10): These are loyal enthusiasts who will keep buying and refer others, fuelling growth.
Passives (score 7-8): These are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
Detractors (score 0-6): These are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
Calculate the percentage of respondents in each group:
Percentage of Promoters=(Number of Promoters/Total number of respondents)×100
Percentage of Detractors=(Number of Detractors/Total number of respondents)×100
Compute the NPS:
NPS=Percentage of Promoters−Percentage of Detractors
The result is a score that ranges from -100 to 100. An NPS above 0 is generally considered good, with scores above 50 being excellent.
Here’s an example:
Suppose you surveyed 100 customers.
60 customers are Promoters (60%).
20 customers are Passives (20%).
20 customers are Detractors (20%).
Then:
Percentage of Promoters=60%
Percentage of Detractors=20%
NPS=60%−20%=40
In this example, the NPS is 40, indicating a positive overall sentiment towards the company/product/service.
Importance in Financial Services
NPS holds particular weight in the financial services sector. Here, the customer’s interaction isn’t limited to a one-time transaction. Instead, it often involves a long-term relationship that includes everything from day-to-day banking needs to potentially life-changing financial decisions like loans or investments. A high NPS in financial services can point towards greater customer satisfaction and loyalty, which in turn reduces churn and increases the lifetime value of each customer.
For example, challenger banks like Monzo have shown that focusing on customer experience can lead to high NPS scores. According to their annual report in 2022 Monzo’s NPS score of 69 in 2021 demonstrated their ability to gain a loyal following, while also putting pressure on traditional banks to improve their services. It shows that customer loyalty can be a significant differentiator in the market.
Current Landscape in the UK
In the United Kingdom, the financial industry is undergoing rapid transformation. Traditional banks are finding themselves in competition with a plethora of fintech startups that are capitalising on newer technologies and customer service models. These startups often have the advantage of higher NPS scores, which can indicate better customer satisfaction and loyalty.
Several UK fintech firms, such as Revolut and Starling Bank, have managed to secure high NPS scores. For instance, Starling Bank‘s NPS score of 79 shows they are doing something right when it comes to customer satisfaction. These fintech startups, unburdened by legacy systems and traditional operational inefficiencies, have been more agile in adapting to customer needs.
Collecting Reliable NPS Responses
In the realm of customer feedback, the Net Promoter Score (NPS) stands as a pivotal metric. It gauges customer loyalty, a crucial barometer for any business. However, the integrity of NPS data hinges on how and when responses are collected. This chapter delves into effective strategies to gather NPS responses, ensuring they reflect genuine customer sentiment without falling prey to distortions or excessive optimism.
Timing is Everything
The timing of an NPS survey can significantly impact its accuracy. If posed immediately following a customer’s positive experience, the responses may skew overly optimistic. Conversely, delay can breed forgetfulness or indifference. The golden mean varies; for transactional services, a few days post-interaction is optimal. For ongoing services, consider a quarterly approach.
Embracing Randomness
A true reflection of customer sentiment emerges from random sampling. It’s essential to reach across the customer spectrum – new, long-standing, satisfied, and dissatisfied. This diversity in feedback roots out any bias towards positivity.
Anonymity as Assurance
Customers speak their minds when assured of anonymity. Confidential surveys encourage honesty, drawing out both praise and criticism with equal forthrightness.
Questioning Without Leading
The phrasing of survey questions wields great power. Neutral, direct questions prevent nudging respondents towards positive responses. The aim is to elicit genuine feedback, not a desired answer.
Communication: Setting the Tone
When inviting participation in an NPS survey, emphasise the value of honest feedback. This sets an expectation: all feedback, whether glowing or critical, is equally welcomed and necessary.
Consistency Over Time
Ongoing surveys, as opposed to one-time efforts, paint a more accurate picture. Trends and patterns over time offer more insight than a singular snapshot.
Segmentation for Insight
Analysing responses based on customer segments – such as demographics or interaction types – can yield deeper insights. This helps to identify if certain groups are more inclined towards optimism.
Benchmarking: The Industry Perspective
Comparing NPS scores with industry benchmarks can contextualize your data. It helps in understanding if a trend towards optimism is industry-wide.
Beyond NPS
Integrating NPS with other forms of feedback – customer satisfaction surveys, direct comments – offers a holistic view of customer sentiment.
Strategies to Improve NPS in Financial Services
Enhanced Customer Experience
The experience a customer has with your service often dictates whether they become promoters or detractors. Financial institutions should focus on every aspect of the customer journey. One approach to enhance customer experience is through the use of predictive analytics. These tools can analyse customer data to offer personalised financial advice or products.
For instance, American Express has utilised machine learning algorithms to offer personalised rewards to its customers, which has been well-received and likely contributed to its NPS score of 29. Through personalisation, the institution was able to enhance the customer’s perception of value, thereby improving satisfaction and loyalty.
Transparency
Financial matters can be complex, and a lack of transparency can often lead to distrust. By making all fees, charges, and terms and conditions crystal clear, financial institutions can eliminate one major source of customer dissatisfaction.
Tesco Bank provides an excellent example of transparency within the UK’s financial services sector. One notable feature of Tesco Bank’s approach is its commitment to making all product terms and conditions available to customers in clear, easy-to-understand language. These documents are readily accessible on their website, allowing customers to review them before making a financial commitment. This straightforward approach eliminates ambiguity, ensuring customers know exactly what they are getting into.
Furthermore, Tesco Bank is transparent about its fee structure, especially concerning its range of credit cards, current accounts, and insurance products. Charges, potential penalties, and the interest rates are all clearly laid out. Tesco Bank also offers detailed FAQs and guides that help customers understand how to manage their accounts, what to do in case of fraud, and how to take advantage of features like mobile banking.
This level of transparency not only builds customer trust but also simplifies the decision-making process for potential customers. By being open and transparent, Tesco Bank enhances its credibility and customer loyalty. Over time, these practices are likely to contribute positively to its Net Promoter Score (28 in 2023), as satisfied customers are generally more willing to recommend services they perceive as honest and straightforward.
Transparency doesn’t just stop at pricing. It extends to how you handle customer data and privacy. GDPR compliance and clear data usage policies can also instil confidence, contributing to better customer loyalty and, ultimately, a better NPS.
Listen to Detractors
Ignoring detractors is a mistake that can cost your business dearly. By listening to customer grievances, financial institutions can gain valuable insights into areas that may require improvement. For instance, if several detractors are complaining about long wait times on customer service calls, that’s a clear signal that the area needs attention.
Banks can adopt sophisticated feedback mechanisms like automated surveys or in-app feedback forms. The data collected from these channels should then be analysed to drive actionable strategies. Some banks go a step further by having a dedicated team responsible for contacting detractors, understanding their concerns, and providing solutions.
Employee Training
Employees, especially customer service representatives, act as the face of a financial institution. Their interaction with the customer can make or break the customer’s perception of the company. Comprehensive training programs should, therefore, be put in place to equip employees with the necessary skills and knowledge.
Nationwide Building Society, which achieved an NPS of 43 in 2023, places a strong emphasis on staff training. Their training focuses not just on procedural efficiency but also on soft skills. Their customers have a good experience, whether they are making a simple query or resolving an issue.
Technology Adoption
The advent of new technologies like Artificial Intelligence, Blockchain, and Machine Learning provides an opportunity to streamline operations and improve customer satisfaction. By implementing chatbots for customer service, for example, businesses can offer 24/7 support. Similarly, the use of blockchain can speed up transactions that would otherwise take days, like international money transfers.
Companies like TransferWise (now known as Wise) have leveraged technology to provide faster, cheaper cross-border payments. Their focus on a streamlined, user-friendly experience has contributed to a high NPS score. The Wise NPS score of 44 attests to the success of their approach. It provides a template for how technological adoption can improve customer satisfaction and loyalty.
Improving the Net Promoter Score is not a one-off task but an ongoing process that requires constant adaptation and fine-tuning of various business operations. Financial institutions should aim to make holistic improvements, taking into account everything from customer service and transparency to employee training and technology adoption. By doing so, they can foster a culture that places the customer at the heart of every business decision. The payoff will not just be an improved NPS but also increased customer loyalty, which in the long term ensures sustainable growth and profitability.