Kashmir’s Small Businesses | NPS: The Key to Customer Loyalty

Customer experience (CX) has become a cornerstone for businesses of all size, driving loyalty, satisfaction, and growth. One critical metric for evaluating CX is the Net Promoter Score (NPS), developed by Fred Reichheld of Bain & Company.

This simple yet powerful tool measures customer loyalty by categorizing them into promoters, passives, and detractors based on their likelihood to recommend a product or service.

While widely adopted by large corporations, NPS also offers significant advantages for small and medium-sized businesses (SMBs), particularly in rapidly developing regions like Kashmir. By leveraging NPS, these businesses can gain actionable insights to enhance their customer journey and fuel growth

Net Promoter Score (NPS) is a metric used to measure customer loyalty and satisfaction. Developed by Fred Reichheld of Bain & Company, it was introduced in his 2003 Harvard Business Review article, “The One Number You Need to Grow.”

How is NPS Measured?

NPS is determined by asking customers a single question: "How likely are you to recommend our product or service to others on a scale of 0-10?" Based on their responses, customers are categorized as follows:

Promoters (scores 9-10): Loyal enthusiasts who will keep buying and refer others, fueling growth.

Passives (scores 7-8): Satisfied but unenthusiastic customers who are vulnerable to competitive offerings.

Detractors (scores 0-6): Unhappy customers who can damage your brand through negative word-of-mouth.

Formula to calculate:  Net Promoter Score = % Promoters – % Detractors

NPS is crucial as it has become a global standard for organizations to gauge and enhance their customer experience. It provides a straightforward way to collect feedback regarding customers' experiences with a brand and their likelihood to recommend it to others.

The benefits of NPS are manifold: it measures customer loyalty, providing a clear metric to understand this vital aspect. It helps identify and leverage promoters, the customers who are most enthusiastic about the products or services. NPS also encourages growth by turning passive customers into active promoters, thereby expanding the customer base.

Furthermore, it offers insights into customer satisfaction, enabling businesses to make informed improvements to the customer experience. By utilizing NPS, businesses can scientifically measure customer loyalty, enhance customer satisfaction, and drive growth.

Many large companies use the Net Promoter Score (NPS) to measure and track customer sentiment, with many considering it the most accurate and effective tool for gauging customer loyalty and satisfaction.

However, there is an ongoing debate about whether this tool is equally beneficial for solo, small, and medium-sized businesses. If your business's revenue isn't in crores and you're not among the largest companies, does NPS still provide value?

The widespread use of NPS by big companies doesn't diminish its usefulness for smaller businesses. On the contrary, it can be even more advantageous for small and medium-sized enterprises to utilize NPS to assess customer satisfaction.

The surge of nearly 5,000 new companies registered in Jammu and Kashmir, as reported by the Ministry of Corporate Affairs last September, underscores the region's rapidly scaling business landscape. As small and medium-scale businesses emerge, it is crucial for them to focus on the Net Promoter Score (NPS) at an early stage of their growth to evaluate the customer journey and identify areas for improvement in delivering top-class customer experiences.

NPS is essential for small businesses because it helps organizations hone in on their customers' experiences, understand their journey, and identify areas for improvement. Utilizing NPS methodology to gather customer feedback is crucial for these emerging businesses as well as established ones. According to a 2005 study by the London School of Economics on customer advocacy and business growth, a 7-point increase in NPS correlates with a 1% growth in revenue.

Numerous studies have demonstrated a strong correlation between NPS growth and company revenue. By engaging in collecting and acting on customer feedback, solo, small, and medium-sized companies in the region can enhance customer satisfaction and loyalty, ultimately boosting sales and revenue. 

Small businesses can effectively implement the Net Promoter Score (NPS) methodology with a few strategic approaches. One practical method is to send out NPS surveys to customers every six months via their mobile numbers. Surveys can be distributed as links through email or SMS, but modern tools like WhatsApp are often more effective due to higher response rates.

Additionally, businesses should consider the appropriate trigger logic for their surveys, deciding whether to target specific customer segments and how frequently to measure customer loyalty—whether annually, biannually, or more frequently depending on their customer interaction patterns.

Physical NPS surveys are also a viable option; printed forms can be handed to customers during transactions, encouraging immediate feedback. By utilizing these various channels and carefully planning the survey triggers, small businesses can gain valuable insights into customer loyalty and satisfaction.

In conclusion, the Net Promoter Score (NPS) is a valuable tool for businesses of all sizes, including SMBs in emerging markets like Kashmir. Implementing NPS allows these businesses to gather critical customer feedback, identify strengths and weaknesses in their CX, and drive growth through improved customer satisfaction and loyalty.

As evidenced by studies linking NPS to revenue growth, adopting this metric can help SMBs not only survive but thrive in competitive environments. By strategically collecting and acting on customer feedback, small businesses can build strong, loyal customer bases, ultimately boosting their sales and long-term success.

By Qazi Owais, Corporate CX Consultant, MBA, University of Huddersfield