Example of Measurement of Performance
Essay by conotessay • September 20, 2016 • Case Study • 399 Words (2 Pages) • 942 Views
ISOM 2700(L05) Fu Wing Lam
Net Promoter Score
When it comes to profit, there are good profit and bad profit. Bad profit is those profit made when the company tries to boost profit by ignoring the benefits of customers. For example, a company may set the goods at low price but provide unacceptably low-quality goods or increase the price of services but do not improve the quality of the services provided. Clearly, the more bad profit a company makes, the worse the company’s reputation and will lead to a decrease in long-term profitability and growth of the company. Net Promoter Score (NPS) is a good scoring system of customer satisfaction which is correlated to revenue growth.
How it works
The company will ask the customers a question: what is the chance of you to promote this products/services to your friends or colleagues? The answer is based on a 0 to 10 scale. Then the customers will be divided into 3 groups:
Score | Customers |
9-10 | Promoters |
7-8 | Passively satisfied |
0-6 | Detractors |
Good NPS varies among different industries but a NPS of 80 is considered as good most of the time. Using NPS, the company can analyze the NPS of its own products/services and other similar competitive products/services. Another way is to see the change in NPS whenever there is new change in its products/services such as the quality or price.
Real-life Example
In 1980s, American Ex-press utilized the profit made from travelling services which is its core business to expand its financial services such as credit cards. This temporarily increase the profit of the American Ex-press. Yet, the profit made was not utilized by the company in its core business. The old customers thought that the quality of services did not improve and were even worse than before. The growth rate and profitability of American Ex-press decreased as a result. They tried to provide additional services to the VIP customers but this also failed. After they introduced the NPS system into the company, they could finally measure what methods can increase the satisfaction of their customers and hence their profit. For example, they found that reward cards increase NPS and until now these cards are very popular in the market and even becomes one of the most profitable products of American Ex-press.
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