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The Net Promoter Score: Let Us Not Forget The Past

Those who cannot remember the past are condemned to repeat it. Those words are as true today as they were in 1905 when George Santayana coined that phrase.

In 2003, the Net Promoter Score (NPS) was formally introduced by Fred Reichheld.  His and his co-developer's overstated claim that the NPS was the best predictor of business growth (e.g., better than overall satisfaction) was never replicated.  Here is a classic blog post from 2007 to help remind you of the NPS past. I am guessing the Net Promoter Score developers have not forgotten the past. Why else do you think they changed the meaning of NPS to Net Promoter System?

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The Net Promoter Score (NPS) is used by many of today’s top businesses to monitor and manage customer relationships. Fred Reichheld and his co-developers of the NPS say that a single survey question, “How likely are you to recommend Company Name to a friend or colleague?”, on which the NPS is based, is the only loyalty metric companies need to grow their company. Despite its widespread adoption by major brands, the NPS is now at the center of a debate regarding its merits.

NPS Methodology

The NPS is calculated from a single loyalty question, “How likely are you to recommend us to your friends/colleagues?” Based on their rating of this question using a 0 to 10 likelihood scale where 0 means “Not at all Likely” and 10 means “Extremely Likely,” customers are segmented into three groups: 1) Detractors (ratings of 0-6), 2) Passives (ratings of 7-8) and 3) Promoters (ratings of 9-10). A company can calculate its Net Promoter Score by simply subtracting the proportion of Detractors from the proportion of Promoters.

NPS = prop(Promoters) – prop(Detractors)

NPS Claims

Fred Reichheld, the co-developer of the NPS (along with Satmetrix and Bain & Company) has made very strong claims about the advantage of the NPS over other loyalty metrics. Specifically, they have said:

  • The NPS is “the best predictor of growth,” (Reichheld, 2003)
  • The NPS is “the single most reliable indicator of a company’s ability to grow” (Netpromoter.com, 2007)
  • “Satisfaction lacks a consistently demonstrable connection to… growth” (Reichheld, 2003)

Reichheld support these claims with research displaying the relationship of NPS to revenue growth. In compelling graphs, Reichheld (2006) illustrates that companies with higher Net Promoter Scores show better revenue growth compared to companies with lower Net Promoter Scores. Reichheld sites only one study conducted by Bain & Associates (co-developers of the NPS) showing the relationship between satisfaction and growth to be 0.00. [1]

Scientific Challenges to NPS Claims

Researchers, pointing out the NPS claims are only supported by Reichheld and his co-developers, have conducted rigorous scientific research on the NPS with startling results. For example, Keiningham et al. (2007), using the same technique employed by Reichheld to show the relationship between NPS and growth, used survey results from the American Customer Satisfaction Index (ACSI) to create scatterplots to show the relationship between satisfaction and growth. Looking at the personal computer industry, they found that satisfaction is just as good as the NPS at predicting growth. Keiningham et al. (2007) found the same pattern of results in other industries (e.g., insurance, airline, ISP). In all cases, satisfaction and NPS were comparable in predicting growth.

Still, other researchers (Morgan & Rego, 2006) have shown that other conventional loyalty measures (e.g., overall satisfaction, likelihood to repurchase) are comparable to NPS in predicting business performance measures like market share and cash flow.

Contrary to Reichhheld, other researchers, in fact, have found that customer satisfaction is consistently correlated with growth (Anderson, et al., 2004; Fornell, et al., 2006; Gruca & Rego, 2005).

Problems with NPS Research

The recent scientific, peer-reviewed studies cast a shadow on the claims put forth by Reichheld and his cohorts. In fact, there is no published empirical finding supporting the superiority of the NPS over other conventional loyalty metrics.

Keiningham et al. (2007) aptly point out that there may be research bias by the NPS developers. There seems to be a lack of full disclosure from the Net Promoter camp with regard to their research. The Net Promoter developers, like any research scientists, need to present their analysis to back up their claims and refute the current scientific research that brings their methodological rigor into question. To date, they have not done so. Instead, the Net Promoter camp only points to the simplicity of this single metric which allows companies to become more customer-centric. That is not a scientific rebuttal. That is marketing.

References

Anderson, E. W., Fornell, C., & Mazvancheryl, S. K. (2004). Customer satisfaction and shareholder value. Journal of Marketing, 68 (October), 72-185.

Fornell, C., Mithas, S., Morgensen, F. V., Krishan, M. S. (2006). Customer satisfaction and stock prices: High returns, low risk. Journal of Marketing, 70 (January), 1-14.

Gruca, T. S., & Rego, L. L. (2005). Customer satisfaction, cash flow, and shareholder value. Journal of Marketing, 69 (July), 115-130.

Hayes, B. E. (1997). Measuring Customer Satisfaction (2nd Ed.). Quaility Press. Milwaukee, WI.

Ironson, G.H., Smith, P.C., Brannick, M.T., Gibson W.M. & Paul, K.B. (1989). Construction of a "Job in General" scale: A comparison of global, composite, and specific measures. Journal of Applied Psychology, 74, 193-200.

Keiningham, T. L., Cooil, B., Andreassen, T.W., & Aksoy, L. (2007). A longitudinal examination of net promoter and firm revenue growth. Journal of Marketing, 71 (July), 39-51.

Morgan, N.A. & Rego, L.L. (2006). The value of different customer satisfaction and loyalty metrics in predicting business performance. Marketing Science, 25(5), 426-439.

Netpromoter.com (2007). Homepage.

Reichheld, F. F. (2003). The One Number You Need to Grow. Harvard Business Review, 81 (December), 46-54.

Reichheld, F. F. (2006). The ultimate question: driving good profits and true growth. Harvard Business School Press. Boston.

 


[1] http://resultsbrief.bain.com/videos/0402/main.html

8 Responses to The Net Promoter Score: Let Us Not Forget The Past

  1. Dr. John R. Miller January 2, 2012 at 7:27 pm #

    Interesting read Bob.

    I have read several blogs and articles lately that seem to be into “dissing” customer satisfaction as a legitimate service center metric. The authors of these articles go to great pains to point out the reality that “satisfied” customers are consistently bolting from one product to the next … so as “customer service experts” we must move beyond satisfaction and find a more meaningful measure that will help us truly understand effective strategies to retain customers and optimize on profitability. So, “satisfaction” is completely abandoned in favor of NPS or other loyalty measurements.

    But let’s get real … satisfaction is not a poor measure unless it happens to be where you stop in the progression of moving your customers. In other words, customer satisfaction is only a problem insofar as most companies that measure it seem to "settle" for satisfied customers.

    However, I would maintain that satisfaction is an important building block in creating loyalty and that we should keep on measuring it. You see, we tend to fall into the trap of believing that “loyalty” is an absolute … that customers are either loyal or they're not … they are either faithful to your brand or they're not … they are either with you 100% or they are not with you at all.

    Such thinking is faulty … and very unprofitable. It is true that satisfaction is not where you want your customers to “live”, but we have to realize that for most customers in most markets within most industries, the road to loyal behaviors is a progression, and it moves through a multitude of touchpoints and customer experiences. We should want to make all of those touchpoints and experiences “satisfying” to customers so that we can eventually get them to a place of loyalty.

    I would advocate that we keep satisfaction as a meaningful measure to ensure that we pointing our customers in the right direction down the loyalty highway. Customer satisfaction can be a satisfying measure when we realize that it is not enough, but that it is a valid benchmark that demonstrates we are on our way incrementally via touchpoints and experiences to a good, healthy and loyal place.

    Dr. John R. Miller
    Principal | Pretium Solutions
    http://www.pretiumsolutions.com

    • Deryk January 10, 2012 at 2:13 pm #

      Well said. Measure something standard and accepted and do it consistently. Then evolve based on customer and business needs. One of my favorites in the transactional interaction space is Level of Effort or Customer Effort Score. I believe it to strike a balance between top and bottom line focus. Trying too hard to delight customers at every interaction point, as NPS "bible thumpers" would suggest we do, can set unrealistic expectations and increase cost of support needlessly. LoE/CES seem to be a nice balance. Thank you for the insight.

  2. Deryk January 10, 2012 at 2:08 pm #

    Bob, you bring up great points as always. I have witnessed the same results, or even worse, in that sometimes those that have high Net Promoter Scores actually grow less. Especially in a B2B environment, NPS must be accompanied by other loyalty metrics much more relevant to growth potential. Loyalty metrics are in some way like religion though. Whichever you choose is fine, as long as it makes you do the right thing. Thanks for the info.

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