The Net Promoter Score (NPS®) is a widely used measure that looks at the likelihood of customers recommending a company. NPS is a customer loyalty metric developed in 2003 by management consultant Fred Reichheld of Bain & Company in collaboration with the company Satmetrix. While there are still many important factors beyond likelihood to recommend, NPS has become a popular measure due to its simplicity and the ability for the score to be benchmarked against other companies in the same industry, and even across industries. Many financial institutions in particular track their NPS as yet another measure of performance, as seen from the customer’s eyes.
To calculate the NPS of a financial institution, customers rate their likelihood to recommend their financial institution on a scale of 0 to 10. Responses are lumped into three general categories:
- Promoters (Score of 9 to 10) – These are loyal enthusiasts, who are assumed to promote the company’s brand to others.
- Passives (Score of 7 to 8) – These customers are considered satisfied, however they are less enthusiastic than promoters. They are typically more vulnerable to competitive offerings.
- Detractors (Score of 0 to 6) – Detractors are unhappy customers who could potentially damage a company’s brand by sharing their negative experiences by word-of-mouth.
For a point of reference, some of the top NPS leaders in the United States include USAA at 83 and Amazon at 76. On the other end, NPS scores can also be much lower, even negative (meaning there are more detractors than promoters for the company). When looking at financial institutions specifically, a study conducted by The Temkin Group found that the banking industry has potentially the broadest range of Net Promoter Scores among the 19 tested industries ranging from a low of -26 percent up to 77 percent (averaging out at 17 percent). Another study conducted by Bain/Research Now shows that the industry as a whole seems to be moving in a positive direction with their NPS since 2011. Interestingly, the study also differentiates types of financial institutions (direct banks, credit unions, community banks, regional banks and national banks) and shows that NPS tends to be higher on average for banks that operate in a smaller regions. The chart below is a good visual representation of these findings:
If anything, the broad range of NPS and variation between categories of banks shows financial institutions what is possible (on both ends of the spectrum) with regards to the likelihood their customer base will recommend them. Regardless of the overall trends in NPS, it is going to be important for banks and credit unions to attempt to be near the top of that broad range. The single NPS metric allows financial institutions to easily compare their performance year after year. The overall goal to increase NPS, while not specific, is easily measurable.
The best way to formulate more specific organizational goals in hopes of increasing NPS is to conduct statistically reliable research and ask your customers what can be done better. A basic customer satisfaction research study will help identify detractors and promoters of a brand, and what factors drive the customer’s likelihood to recommend, as well as provide you with a regression model to identify factors that most impact NPS. Additionally, customer satisfaction research will specifically identify what customers expect, which in the end will help organizations make the necessary changes to increase NPS.
If you are interested in conducting further market research for you bank or credit union, contact Sandy Baker, our Business Development Director, at SandyB@RMSresults.com or by calling (315) 635-9802.
“Net Promoter” is a registered trademark of Fred Reichheld, Bain & Company and Satmetrix.