Net Promoter

Net Promoter or Net Promoter Score (NPS) is the percentage of customers rating their likelihood to recommend a company, a product, or a service to a friend or colleague as 9 or 10 ("promoters") minus the percentage rating this at 6 or below ("detractors") on a scale from 0 to 10. Respondents who provide a score of 7 or 8 are referred to as "passives" and do not enter into the overall percentage calculation. The result of the calculation is expressed without the percentage sign.

It is a management tool used as a measure of customer satisfaction and has been shown to correlate with revenue growth relative to competitors.[1] NPS has been widely adopted by Fortune 500 companies and other organizations.[2][3] Companies, employers, or other bodies ask the questions of customer, employee, or other respondents such as resellers, implementation partners, and suppliers. NPS ranges between −100 (all respondents are "detractors") and +100 (all respondents are "promoters"). Scores vary substantially between industries, so a good score is simply one whose trend is better than that of competitors in the same industry, as measured by double-blind benchmark research.

The metric was developed by (and is a registered trademark of) Fred Reichheld, Bain & Company and Satmetrix. It was introduced by Reichheld in his 2003 Harvard Business Review article, "The One Number You Need to Grow".[4] Its popularity and broad use have been attributed to its simplicity and its openly available methodology.[3]

How it works

The Net Promoter Score is calculated based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague? The scoring for this answer is most often based on a 0 to 10 scale.[5]

Those who respond with a score of 9 to 10 are called Promoters, and are considered likely to exhibit value-creating behaviors, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers. Those who respond with a score of 0 to 6 are labeled Detractors, and they are believed to be less likely to exhibit the value-creating behaviors. Responses of 7 and 8 are labeled Passives, and their behavior falls between Promoters and Detractors.[5]:51 The Net Promoter Score is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. For purposes of calculating a Net Promoter Score, Passives count toward the total number of respondents, thus decreasing the percentage of detractors and promoters and pushing the net score toward 0.[6]

Companies are encouraged to follow the likely-to-recommend question with an open-ended request for elaboration, soliciting the reasons for a customer's rating of that company or product. These reasons can then be provided to front-line employees and management teams for follow-up action.[4] The open-ended question is often a conditional one meaning that it only appears if the customer gives below a certain threshold, such as below 7 (detractor).[7] Local office branch managers at Charles Schwab Corporation, for example, call back customers to engage them in a discussion about the feedback they provided through the NPS survey process, solve problems, and learn more so they can coach account representatives.[8]

Reichheld and Co-Author, Rob Markey say the rating and answers to the "Why?" question provide all that is needed to identify reference customers and improvement opportunities. Practitioners often claim that responses to the "Why" question provide more important information than the score, itself. USAA and Verizon, for example, both claim that the score is less important than the reasons why. For some, the lack of any easy way to automatically analyze the verbatim answers without human bias is problematic. Others, such as Dell or Intuit, claim that technology helps analyze the verbatim responses effectively.[3]

Additional questions can be included to assist with understanding the perception of various products, services, and lines of business. These additional questions help a company rate the relative importance of these other parts of the business in the overall score. This is especially helpful in targeting resources to address issues that most impact the NPS. Companies using the Net Promoter System often rely on software as a service vendors that offer a full suite of metrics, reporting, and analytics.[5]:48–49

The primary objective of the Net Promoter Score methodology is to predict customer loyalty (as evidenced by repurchase and referral) to a product, service, brand, or company.[5]:49–51 Reichheld and Markey developed the methodology by comparing the ability of several different questions to predict future purchases and referrals of individual respondents. They chose the likelihood to recommend question based on the observation that it best predicted these customer behaviors in 11 of 14 industries studied.[5]:49–51 They also found that differences in Net Promoter Scores among direct competitors in a market could explain substantial differences in revenue growth rates among competitors in that market.[5]:61–65[5]:77–81[9] Importantly, Markey points out that "competitive benchmark" Net Promoter Scores collected through a carefully constructed double-blind Quantitative marketing research methodology provide the only valid basis for comparing scores.[10]

Net Promoter System also requires a process to close the loop. In closing the loop, the provider actively intervenes to learn more from customers who have provided feedback, and also to change a negative perception, often converting a Detractor into a Promoter.[5]:175–198 The Net Promoter survey will identify customers who need follow-up, including Detractors, and should automatically alert the provider to contact the consumer and manage the follow-up and actions from that point,[11] a practice followed by companies such as Scotiabank.[3]

Proponents of the Net Promoter approach claim the score can be used to motivate an organization to become more focused on improving products and services.[5]:199–200 The Net Promoter Score is now used by two-thirds of the Fortune 1000 companies according to the May 2020 Fortune article The Simple Metric That’s Taking Over Big Business[12]. The article mentions that “Some 40,000 employees use it at IBM, and the executive who oversees its use, Michelle Peluso, says, ‘It’s more than a metric. One could use the word religion’”. The article also goes to some lengths to position NPS as a long-term metric. They include a quote from Diego Rodriguez, Chief Product and Design Officer at Intuit, who says, “This is a long-term metric. You can drive yourself crazy if you get hung up on the day-to-day or month-to-month. But if you use it for improving long-term, people will never go back.”

Some proponents of the Net Promoter Score suggest that the same methodology can be used to measure, evaluate and manage employee loyalty. They claim that collecting the feedback from employees in a manner similar to Net Promoter customer feedback can provide companies a way to improve their culture. What is sometimes called the "employee Net Promoter Score" or eNPS has been compared to other employee satisfaction metrics and some companies have claimed that it correlates well with those other metrics.[5]:165

For some industries, notably software and services, it has been shown that Detractors tend to remain with a company and Passives leave.[13] This appears to be the case where switching barriers are relatively high.

In the face of criticisms of the Net Promoter Score, the proponents of the Net Promoter approach claim that the statistical analyses presented prove only that the "recommend" question is of similar predictive power to other metrics, but fail to address its practical benefits, which are at the heart of the argument Reichheld put forth.[3] Proponents also counter that analyses based on third-party data are inferior to those conducted by companies on their own customer sets, and that the practical benefits of the approach (short survey, simple concept to communicate, ability to follow up with customers) outweigh any statistical inferiority.[14] They also allow that a survey using any other question can be used within the Net Promoter System, as long as it meets the criteria of sorting customers reliably into promoters, passives and detractors.[5]:12–13

Criticism

While the Net Promoter Score has gained popularity among business executives and is considered a widely used instrument for measuring customer satisfaction in practice, it has also generated controversy in academic and market research circles.[15]

Research by Keiningham, Cooil, Andreassen and Aksoy disputes that the Net Promoter metric is the best predictor of company growth.[16] It has to be pointed out that the non-correlating data they identified was entirely with retail gas stations in Norway. Gas stations are a great example of a sector where it should be obvious that revenue trends depend above all on the price of a barrel of oil and that customer satisfaction has little or no influence on financial results. The conclusions of the paper are therefore invalid, since they are not supported by the data from the other industries it covered. Furthermore, Hayes (2008) claimed there was no scientific evidence that the "likelihood to recommend" question is a better predictor of business growth than other customer-loyalty questions (e.g., overall satisfaction, likelihood to purchase again). Specifically, Hayes stated that the "likelihood to recommend" question does not measure anything different from other conventional loyalty-related questions.[17] The customer metrics included in this study perform equally well in predicting current company performance."[18] In defence of NPS, it must be said that the objectors actually state that the superior predictive ability of the recommendation question in most industries has never been demonstrated in a peer-reviewed journal. That was the case at the time those papers were written, since the HBR is not such a journal. The objectors did not show that any other single-question metric was superior.

No evidence for 11-point scale superiority

While several studies, such as one by Preston and Colman,[19] have shown that there is little statistical difference in reliability, validity, or discriminating power, an unpublished paper by Schneider et al (2008) found a more nuanced pattern. Out of four scales tested in two studies (the original LTR with neutral label, a 7-point version with neutral label, a 7-point fully labeled, and 5-point fully labeled), the 7-point scales were better than the 11-point scale advocated by Reichheld, with partly-labeled scale outperforming all others by a smaller margin in predicting stated historical recommendations .[20]

Reliability compared to a composite index of questions

"A single item question is much less reliable and more volatile than a composite index."[21] "Furthermore, combining CFMs (customer feedback metrics), along with simultaneously investigating multiple dimensions of the customer relationship, improves predictions even further."[18] Addressing this objection in one of their Bain Net Promoter System podcasts[22], Reichheld and Markey point out that they have never said otherwise. They simply find composite indices far more challenging to implement and communicate.

Imperfect predictive power for loyalty behaviors

"Recommend intention alone will not suffice as a single predictor of customers' future loyalty behaviors. Use of multiple indicators instead of a single predictor model performs significantly better in predicting customer recommendations and retention."[23] "…given the present state of evidence, it cannot be recommended to use the NPI as a predictor of growth nor financial performance."[24] Once again, the recommendation is a personal opinion that values the measurement above the ability to communicate results and potential actions effectively. Satmetrix, Reichheld and Markey all agree that using multiple metrics will provide improved statistical significance, at the expense of greatly increased complexity and communication challenges.

Not suitable as key performance indicator

As part of a critical analysis of the Net Promoter Score, Ralf Lisch highlighted that "it is a weak point of the approach that the so-called passives are shut out from the score although they have an influence on the percentage of the remaining two categories."[25] Furthermore, losing detractors as customers can improve the NPS while the business eventually suffers. Lisch comes to the conclusion that contrary to the claim that the Net Promoter Score is "the one number you need to grow", the NPS is not suitable as key performance indicator. . Lisch’s first point about Passives is of course totally incorrect, as Passives are indeed included when calculating the score. NPS is quite easy to game, like all customer satisfaction metrics, and as Lisch points out. This is why Reichheld, Bain, and Satmetrix, all recommend double-blind competitive benchmark research as the main way of calibrating NPS and predicting market share trends.

See also

References
  1. Call Centers for Dummies, By Real Bergevin, Afshan Kinder, Winston Siegel, Bruce Simpson, p.345
  2. jennymkaplan, Jennifer Kaplan. "The Inventor of Customer Satisfaction Surveys Is Sick of Them, Too". Bloomberg.com. Retrieved 5 June 2016.
  3. Colvin, Geoff (18 May 2020). "The simple metric that's taking over big business". Fortune. Retrieved 3 June 2020.
  4. Reichheld, Frederick F. (December 2003). "One Number You Need to Grow". Harvard Business Review. PMID 14712543.
  5. Reichheld, Fred; Markey, Rob (2011). The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World. Boston, Mass.: Harvard Business Review Press. p. 52. ISBN 978-1-4221-7335-0.
  6. Satmetrix Net Promoter web site The Net Promoter Score and System
  7. "Net Promoter Score – Something Every Sales Leader Should Use | CustomerThink". customerthink.com. Retrieved 16 June 2020.
  8. Markey, Rob; Fred Reichheld; Andreas Dullweber (December 2009). "Closing the Customer Feedback Loop". Harvard Business Review.
  9. Markey, Rob; Reichheld, Fred. "The Economics of Loyalty". Loyalty Insights. Bain & Company, Inc. Retrieved 9 August 2015.
  10. Markey, Rob. "The Benefits of a Competitive Benchmark Net Promoter® Score". Bain & Company. Retrieved 4 January 2019.
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  13. "Maurice FitzGerald - Satmetrix". September 2015. Archived from the original on 18 December 2015. Retrieved 11 December 2015.
  14. "Would You Recommend Us?" Business Week, 29 January 2006.
  15. Atilla Wohllebe; Florian Ross; Szilárd Podruzsik (November 2020). "Influence of the Net Promoter Score of Retailers on the Willingness of Consumers to Install Their Mobile App". International Journal of Interactive Mobile Technologies. 14 (19): 124–139. doi:10.3991/ijim.v14i19.17027.
  16. Timothy L. Keiningham; Bruce Cooil; Tor Wallin Andreassen; Lerzan Aksoy (July 2007). "A Longitudinal Examination of Net Promoter and Firm Revenue Growth" (PDF). Journal of Marketing. 71 (3): 39–51. doi:10.1509/jmkg.71.3.39. S2CID 54726616.
  17. Hayes (2008), "The True Test of Loyalty," Quality Progress, June 2008, 20–26.
  18. Satisfaction as a Predictor of Future Performance: A Replication. Jenny van Doorn , Peter S.H. Leeflang, Marleen Tijs International Journal of Research in Marketing (Impact Factor: 1.71). 12/2013
  19. Preston, Carolyn C.; Colman, Andrew M. (14 September 1999). "Optimal number of response categories in rating scales: reliability, validity, discriminating power, and respondent preferences" (PDF). Acta Psychologica. 104: 1–15. doi:10.1016/s0001-6918(99)00050-5. hdl:2381/3937. PMID 10769936.
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  23. Timothy L. Keiningham; Bruce Cooil; Lerzan Aksoy; Tor W. Andreassen; Jay Weiner (2007). "The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Customer Retention, Recommendation, and Share-of-Wallet" (PDF). Managing Service Quality. 17 (4): 361–384. doi:10.1108/09604520710760526.
  24. Pollak, Birgit Leisen; Alexandrov, Aliosha (2013). "Nomological validity of the Net Promoter Index question". Journal of Services Marketing. 27 (2): 118–129. doi:10.1108/08876041311309243.
  25. Lisch, Ralf (2014). Measuring Service Performance. Practical Research for Better Quality. Routledge. pp. 147, 152–155. ISBN 9781472411914.
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