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3 NPS® Lessons To Learn From Amazon

by Cvetilena Gocheva

Currently Trending

Financial Services NPS® Benchmarks

by Cvetilena Gocheva

This week, we’re studying Amazon’s Net Promoter Score® in order to learn what sets them apart from the competition when it comes to customer loyalty. Amazon, an eCommerce retailer, has become infamous for its customer experience and loyalty leadership. Amazon’s focus on the customer has helped the brand earn a loyal base of promoters who are happy to recommend the brand to their friends and colleagues and thus drive the customer acquisition cost down. When it comes to customer loyalty, Amazon achieves an NPS of 69.

Based on the global NPS standards any score above 0 would be considered "good", with 50 and above classified as excellent, and 70 or higher as world class.Amazon’s NPS of 69 is on the path of being classified as world class, thus setting a very hard standard for competitors to compete with.

Let’s dig into the specifics of Amazon’s NPS and learn how customer feedback is helping the business grow.

1. Retention

Once Amazon gets someone to sign up for its Prime service, even for a free trial, the company does an impressive job of retaining those subscribers. After the 30-day free trial expires, 2016 research by Consumer Intelligence Research Partners (CIRP) shows that 73% of those subscribers become paid members. The numbers after the first paid year expires are even more impressive, as 91% of Prime subscribers renew for a second year.

According to CIRP, which based its finding on a survey of 2,108 U.S. shoppers, Amazon retains 91% of its paid members for a second year. Such results compare highly to Costco, which reported a 90.4% renewal rate during its Q3 2016 earnings call in late May. Taking into account that acquiring a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one, Amazon’s high NPS is clearly producing financially beneficial results. Furthermore, research done by Frederick Reichheld of Bain & Company (NPS’ inventor) shows that increasing customer retention rates by 5% increases profits by 25% to 95%.

The simplistic, customer-centric experience Amazon Prime delivers makes customers want to stay and recommend the brand. The longer Amazon retains its customers, the greater the value of each customer they acquire.

2. Revenue Growth

In April 2016, Amazon reported $29.1 billion in revenue, representing a 28% increase over the same period the year before. Let’s dig into the details of how Amazon’s revenue growth correlates with it’s high Net Promote Score.

As mentioned before, Amazon Prime is a customer loyalty program that has significantly helped the brand retain customers and thus decrease the cost of customer acquisition. However, what most people do not know is that the service was originally designed to get customers to spend more with Amazon. According to the CIRP’s report, Amazon Prime subscribers spend $1,500 a year with the eCommerce giant, compared to non-Amazon Prime shoppers, who spend just $625 a year.

CIRP’s research also reveals that 40 million people in the U.S. have Amazon Prime memberships. As a result, Prime customers can take advantage of incentives like unlimited video and music streaming, free express shipping and same-day delivery.

Amazon’s 1-Click ordering is another service that has driven Amazon’s word-of-mouth marketing and generated billions in revenue for the retailer. Once customers store their credit card payment and shipping information, they can simply click once to place their orders, skipping the checkout process. This effortless ordering system helps encourage impulse buying: Not going through the checkout helps disconnect customer from how much they actually spend.

Finally, we come to the Kindle. Satisfied Kindle customers have quickly become brand evangelists, thus bringing in new customers. Moreover, according to CIRP, Kindle owners spend an average of $1,450 per year at Amazon, compared to $725 for customers who don't own Kindles.

In a press release, CIRP co-founder Mike Levin said:

"Similar to Amazon Prime members, Amazon Kindle owners are better customers. They also shop more frequently and buy more expensive items on average."

3. Word of Mouth Marketing

Beyond retention, Amazon’s high NPS also helps the brand achieve impressive organic customer growth through word-of-mouth marketing. Because Amazon’s customers are such active promoters, they bring in new customers at no significant marketing cost for the brand.

Amazon does a great job at checking in with their promoters and incentivising them to recommend Amazon Prime to their friends and colleagues (see image below). When sending an email to invite people to try out the service, Amazon makes sure it highlights this is a friend recommendation. In this way, the email invitation adds credibility and increases the interest to try out Amazon Prime. Furthermore, every time an Amazon Prime subscriber brings in new subscribers, they all get $5 to spend, adding another incentive. Activating its promoters in such a way has helped Amazon quickly bring in new customers, but also encourage promoters to spend more.


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“If there’s one reason we have done better than most of our peers in the Internet space over the last six years, it is because we have focused like a laser on customer experience, and that really does matter, I think, in any business. It certainly matters online, where word of mouth is so very, very powerful.”- Jeff Bezos, CEO of Amazon

Conclusion

NPS gives companies the capacity to retain customers, drive revenue and bring the cost of customer acquisition down. As we learned in this article, a Fortune 500 company like Amazon is reaping the rewards with the initiatives taken to get to their high NPS. As a result, the eCommerce giant is able to generate high customer retention rates, thus obtaining a greater value of each customer they acquire. Along with retention, Amazon is enjoying great revenue growth due to the financial value promoters bring to the brand. Finally, word-of-mouth marketing helps Amazon to bring in new customers at no additional acquisition cost.

P.S. Amazon's commitment to customer centricity and experience is helping the brand enjoy extremely high customer retention rates. That is why, we thought you might find it useful to expand your retention management knowledge and learn more about the benefits of high customer retention. With that in mind, here's an absolute must-read eBook to take your knowledge to the next level! CustomerGauge, an NPS thought leader, has written the book on retention, which covers best practices to combat churn using the power of NPS. We hope you find a great read!

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