In 2006, when Fred Reichheld published The Ultimate Question: Driving Good Profits and True Growth, Net Promoter Score, the metric took the business world by storm, with Fortune 500 CEOs adopting it in droves. It was heralded as the only measure that your business needs. So, what is it?
“The Net Promoter Score, or NPS®, is based on the fundamental perspective that every company’s customers can be divided into three categories: Promoters, Passives, and Detractors.
By asking one simple question — How likely is it that you would recommend [company X] to a friend or colleague? — you can track these groups and get a clear measure of your company’s performance through your customers’ eyes. Customers respond on a 0-to-10 point rating scale and are categorized as follows:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
To calculate your company’s NPS, take the percentage of customers who are Promoters and subtract the percentage who are Detractors.”
Simple, right? Maybe too simple.
Since its inception, NPS has been criticized for that very simplicity. While Reichheld demonstrated that NPS score correlated with corporate profitability, researchers and managers found the metric lacking:
- Over time, NPS did not correlate any better with profitability than other metrics of customer satisfaction, such as ACSI. (Timothy L. Keiningham, Bruce Cooil, Tor Wallin Andreassen, & Lerzan Aksoy, “A Longitudinal Examination of Net Promoter and Firm Revenue Growth”)
- NPS may not accurately differentiate between satisfied and dissatisfied customers. Further, the standard NPS question itself is unipolar (willingness to recommend) but analysis treats it as bipolar (willing to detract willingness to promote). (Ken Roberts, Forethought Research Australia.)
- NPS was shown to be less accurate than a composite index of three satisfaction related questions. (Customer Satisfaction – The customer experience through the customer’s eyes, Nigel Hill, Greg Roche and Rachel Allen)
- NPS fails to predict loyalty behaviors, such as repurchase. (“The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Customer Retention, Recommendation, and Share-of-Wallet”, Timothy L. Keiningham, Bruce Cooil, Lerzan Aksoy, Tor W. Andreassen, Jay Weiner).
- NPS is attitudinal (what you say you will do) rather than behavioral (what you do) (Bird, Ehrenberg, and Barnard).
- “Satisfaction” and “liking” are better predictors of recommendations than “likelihood to recommend.” (“Measuring Customer Satisfaction and Loyalty: Improving the ‘Net-Promoter’ Score” by Daniel Schneider, Matt Berent, Randall Thomas and Jon Krosnick)
Such criticisms have reduced the number of firms relying solely on Net Promoter Score to evaluate the health of their customer relationship. Reichheld himself suggests using an open-ended question to probe why customers are unwilling to recommend your firm to others. However, in spite of criticism, NPS continues to be widely used because it is well-marketed and easy to understand.
In his 2011 book, The Ultimate Question 2.0, Reichheld and co-author Rob Markey revisit the metric amid the criticism and the accolades. They recommend using NPS as part of a system for driving “good” profits. As summarized by Rob Marsden, who blogs about NPS: “The Net Promoter System is about driving change through a strategic prioritization and operational focus on customer loyalty – creating more promoters and fewer detractors – by applying the Golden Rule (treating customers as you’d want to be treated) – throughout the organization.
While NPS might be a great metric for focusing people’s attention on customer loyalty, to really change your culture and move the needle on customer loyalty, you need a much more strategic and systemic approach to measurement and actions.
In other words, stop using NPS as a stand-alone metric.
Here are some suggested best practices for using the Net Promoter Score, as identified in many of the articles cited above:
- Use a customer loyalty index consisting of the willingness-to-recommend question with other questions relevant to your business, such as overall satisfaction or likelihood to purchase or re-purchase.
- Conduct a key driver analysis to identify the attributes or components that have the greatest impact on NPS or overall satisfaction.
- Do not use the 11-point scale advocated by Reichheld, which is arbitrary in its assignment of promoters and detractors and has lower predictive validity than other scales.
- As Reichheld suggests, use open-ended questions to probe for underlying reasons behind a respondent’s answers.
- Correlate attitudes with actual behavior to identify the most salient metrics.
In short, NPS can be a part of a strong customer satisfaction and loyalty management system, but it should not be used as the only metric of customer loyalty, nor as the only way to approach this issue. By creating a strong understanding of your customers’ attitudes and behavior, by using multiple satisfaction metrics as decision guides, and by developing a customer-centric culture, you will create internal systems and operation that will keep your organization on track in creating customer satisfaction and loyalty. Without a holistic approach, you risk missing key information that can keep you on the right path. While simplicity is always seductive, with customer behavior, there is also a risk of over-simplifying. NPS may just be an example of that over-simplification.