Critical Factors Affecting NPS Benchmarks
Behind every metric there is a series of factors that influence it. Net Promoter Score® benchmarks are no different.
According to Satmetrix study, average Net Promoter Score for departmental stores lies in the range of 55-65 with the lowest being 30, while average NPS for Internet Service Providers lies in the range of 5-10, with the lowest being -30 and highest being 30.
That essentially means – you cannot say a lot about a company just by looking at their absolute NPS®, without considering their relative performance within the industry. For instance, an investment firm can have a score of NPS of 30 and still be the worst in the industry, while a telecommunication brand with a NPS of 32 can be the market leader.
So, which are the factors that affect NPS benchmarks? How do you know if you have a good NPS, and how do you know it’s not enough? Primarily, there are three factors that affect NPS benchmarks:
Generally, NPS tends to be a better indicator in highly competitive verticals with many players, since it helps you assess relative performance. For instance, the reason why Tesla has an NPS of 96 can partly be attributed to the fact that they have a unique position in the market for luxury, long-range electric automobiles and the customers have little choice, which is the reason why they are more satisfied.
Of course, there’s no denying the fact that Tesla is making awesome electric cars and Elon Musk is building an aspirational brand, but NPS benchmarks tend to be higher for industries dominated by a bigwig and have less competition.
If you think about it, you realize that Apple does not make the cheapest smartphones (they provide the best user experience); Netflix does not provide a generic, free video streaming service (they provide an uniquely affordable, personalized and on-demand premium content streaming service); Amazon does not lure customers with cheap discounts or flash sales all year (instead, it locks them in by offering Prime benefits).
All these companies lead their market-segment and have a unique brag-worthy proposition. That’s the prime factor to consider while you’re evaluating your NPS – how crowded is your industry and how unique is your value proposition?
If you’re in a crowded industry like insurance or healthcare, it’s okay to beat the industrial average or be around it. But if you’re into a niche segment like electric cars or VR headsets, it’s important to ensure you have a high NPS, as it’s a strong leading indicator of how uniquely you are positioned within the industry and how customers perceive your brand.
Zone of Tolerance
Tolerance is one of the crucial factors that affects Net Promoter Score benchmarks, as people are more likely to be opinionated by how much value your products and services deliver to them on a day-to-day basis or how much does their business or life depends on it.
You can measure the tolerance level for your business by asking a simple question:
“On the scale of 1-10, how likely are your customers to get mad, if you can’t address the needs on an immediate basis.”
If the number is closer to 10, your business is in a low-tolerance industry, but if the number is close to 3-4, you’re in a high-tolerance industry.
To understand how tolerance levels affect your NPS, consider this: Verizon has an NPS of 38, which might sound average on a comparative note, but the fact remains that their NPS is the highest in the ISP industry. In fact, the competitors like AT&T and MediaCom have even lower Net Promoter Scores of 15 and -22 respectively.
It’s not because these companies deliver poor service compared to other industries; it’s simply because they’re dealing in a highly competitive market that has zero tolerance towards service interruption.
The easiest way to increase the tolerance level for your company is to transform the customer experience by providing more customer touchpoints, greater transparency and easier accessibility. Perhaps, the best example of companies who have managed to achieve high tolerance, despite being in a low-tolerance industry, are Uber, Southwest, Netflix and more.
One of the reasons why, non-SaaS businesses tend to fetch higher NPS than SaaS ones is because it’s easier to infuse brand loyalty and high tolerance, as they have inherently high switching barriers.
For instance, if you bought a car and you loved the driving experience, you are inclined towards recommending it to your friends, even if the car gave you a little trouble over the period of time. It’s partly confirmatory bias, but mostly high switching barriers.
You cannot afford to switch to a different brand, without taking a financial hit. So, in order to stay consistent with your original conviction, you maintain a strong bias and keep referring the brand.
But, consider what could have happened, if you rented a BMW? You would have less tolerance towards car problems, since switching barriers are relatively low. You can easily rent a different car and see how it performs.
That’s exactly the kind of problem that SaaS businesses face. Usually SaaS companies have an inherently low entry and exit barrier, it becomes difficult (and all the more important!) for brands to retain customers and build customer loyalty. That’s also one of the major reasons why NPS for most SaaS companies are in the mid-tier range.
Comparing Net Promoter Scores is Complicated
Many businesses make the mistake of comparing their NPS with competitors’ or other brands to gain an accurate assessment of their score. In all truth, it’s nothing but vanity.
Comparing NPS benchmarks to evaluate your company’s overall health is pretty much like comparing your blood report with other patients to get a better sense of what’s happening to you.
Of course, if you compare the report with healthy patients, you get a better sense of the underlying irregularities, but it won’t give you any qualitative feedback nor would it help you in choosing the right course of action.
There are many factors you need to look at while comparing Net Promoter Score: geographical area, survey method that was used, number of promoters and detractors, etc.
You can’t rely on the numbers companies publish, because the process can be different from yours. Large companies may have the financial means and ability to go and do independent survey, whereas many small companies measure it independently on their own. Don’t compare apples to oranges.
Frederick C. Van Bennekom have examined the impact of survey mode responses, and found that responses for telephone surveys were significantly higher than for web-form surveys. Comparing your telephone survey scores to the company that used email will simply not give you valid results.
You might also want to pay attention to where the NPS score was measured. You can’t compare your NPS with a company that measured it in a different geographical area. If you were even to compare Apple’s NPS in United States against Apple’s score in Europe you would notice a big difference.
Besides, ask yourself, if you find out in your benchmarking process that your score is lower than your competitors’ will you stop attempting to improve your business? And on the contrary, if you find out that you are ahead of your competition, will you stop then?
The answer is most probably – no. Because it is not the number that matters, it is the fact that you are progressing in improving customer experience and satisfaction.
So, in order to gain an accurate interpretation of your score, you don’t need to compare the metric with other companies. Instead, you just need to compare it with standardized averages and ensure that you fit in.
The best way of measuring progress would be to compare your NPS against your score last quarter, or six months ago, or even last year. If there’s a flat 5-10% increase in promoters every year, you’re progressing towards building a sustainable brand.
That’s the most important benchmark. If you are continually improving your Net Promoter Score, then you’re likely to be continually improving your growth and revenue.
So focus more on what your NPS framework has done in your business over the last three or six months, rather than looking at what the score might be, in comparison with other businesses that are also running Net Promoter Score surveys. But, it really doesn’t make sense to gloat if you have a narrow lead over your competitor in the NPS.
Measure and improve your NPS using Retently
While most businesses are obsessed with growing their score, NPS is not really a quantifiable metric to merely grow, but mostly a qualitative metric to reflect, analyse and react. Start measuring your Net Promoter Score today and focus on what the score is telling you, instead of interpreting it at its face-value.
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