NPS

Acronym for Net Promoter® Score, a measure of customer goodwill described in the business book The Ultimate Question, by Fred Reichheld, published by the Harvard Business School Press. The idea behind NPS is that customers can be divided into three categories: those ‘promoters’ who were very happy with their experience and will both do business again with a company and its affiliates, typically ‘promoters’ rate a company at 9-10 on a 10 point scale; those who are ‘passives’ and are largely satisfied with their experience typically rating the company at 7-8; and ‘detractors’ who are so unhappy with their experience that they will avoid the business in future and counsel their family and friends to do the same, usually rating the business at 6 and below.NPS is defined by Reichheld as equaling the number of promoters minus the number of detractors.

Closely linked to NPS is the concept of ‘bad profits,’ i.e., short-term profits secured at the cost of creating a detractor and lowering a businesses NPS. Examples of bad profits are fees charged of customers that are strictly within the rights of the charging company to demand, but leave the customer feeling abused and mistreated, for example airline change fees on already expensive tickets, excessive hotel charges for services such as broadband, etc. Accountants are sometimes blamed for the phenomenon of ‘bad profits’ since company accounts treat all revenue as good, even where it hurts long term goodwill. Reichheld is familiar with intellectual property too – he has in the US registered Net Promoter as a trademark, although it could be argued to be invalid as too descriptive. See Pyrrhic Cost Cut.