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Net promoter score

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Net Promoter Score is a management tool that can be used to gauge the loyalty of a firm's customer relationships. It serves as an alternative to traditional customer satisfaction research.[1]

Overview

Net Promoter is a customer loyalty metric developed by (and 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".[2] The most important proposed benefits of this method derive from simplifying and communicating the objective of creating more "Promoters" and fewer "Detractors" — a concept claimed to be far simpler for employees to understand and act on than more complicated, obscure or hard-to-understand satisfaction metrics or indices. In addition, proponents claim the Net Promoter method can reduce the complexity of implementation and analysis frequently associated with measures of customer satisfaction, providing a stable measure of business performance that can be compared across business units and even across industries, and increasing interpretability of changes in customer satisfaction trends over time.

The Net Promoter Score is obtained by asking customers a single question on a 0 to 10 rating scale, where 10 is "extremely likely" and 0 is "not at all likely": "How likely is it that you would recommend our company to a friend or colleague?" Based on their responses, customers are categorized into one of three groups: Promoters (9–10 rating), Passives (7–8 rating), and Detractors (0–6 rating). The percentage of Detractors is then subtracted from the percentage of Promoters to obtain a Net Promoter score (NPS). NPS can be as low as -100 (everybody is a detractor) or as high as +100 (everybody is a promoter). The NPS is not a percentage but some people wrongly put a "%" sign after it, instead of correctly using "+" or "-" to show the result. An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent. Companies are encouraged to follow this 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.[3] 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.[4]

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 for customers. They further claim that a company's Net Promoter Score correlates with revenue growth. Discussed at length in The Ultimate Question: Driving Good Profits and True Growth by Fred Reichheld, and "Answering the Ultimate Question" by Richard Owen and Laura Brooks, the Net Promoter approach has been adopted by several companies, including E.ON, Philips, GE,[5] Apple Retail,[6], Allianz,[7] P&G,[8] Intuit,[9] American Express,[10] and Westpac Banking Corporation. It has also emerged as a way to measure loyalty for online applications, as well as social game products.[11] A revised version of The Ultimate Question: Driving Good Profits and True Growth, entitled The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World, by Fred Reichheld with Rob Markey, describes what these companies have done to implement Net Promoter within their organization and the results they have achieved since adopting it.

Independent research confirms the fundamental claim of a relationship between relative competitive Net Promoter Scores and competitive growth rates.[12] Proponents of the Net Promoter approach point out that the statistical analyses presented prove only that the "recommend" question is similar in predictive power to other metrics, but fail to address the practical benefits of the approach, which are at the heart of the argument Reichheld and Satmetrix put forth.

Proponents of the approach also counter that analyses based on third-party data are inferior to analyses conducted by companies on their own customer sets, and that the practical benefits of the approach (short survey, simple concept to communicate) outweigh any statistical inferiority of the approach.[10]

Industry examples

General Electric uses NPS to evaluate process excellence for its customers, and plans to use NPS as a metric to decide the compensation of its leaders;[13] Procter and Gamble uses NPS to measure consumer reactions to its brands;[8] Allianz uses NPS to maintain what it calls "customer-centricity";[7] and Verizon Wireless uses NPS in all business channels including their call centers and retail stores.[14] Other companies using NPS include Philips, American Express, BearingPoint, eBay, Dell, Symantec, Thermo Fisher Scientific and Intuit.[10]

Criticism of NPS

Despite its popularity among business executives, the Net Promoter concept has attracted some controversy from academic and market research circles. Research by Keiningham, Cooil, Andreassen and Aksoy disputes that the Net Promoter metric is the best predictor of company growth.[15] Furthermore, Hayes (2008) claimed there was no scientific evidence that the "likelihood to recommend" question is a better predictor of business growth compared to 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.[16]

Environmental factors may exert an influence on customers' response to the "recommend" question—making comparisons across business units or industries difficult in certain cases. Examples include comparing businesses with an associated social stigma (e.g., cigarettes or online dating) and businesses with different levels of service fulfillment (e.g., delivery services as compared to gyms). Moreover, determining when the survey should be delivered may be more obvious in some cases than in others (such as in the case of a gym), where customer attitudes may be likely to change over time.[citation needed]

Daniel Schneider, Jon Krosnick, et al. found that out of four scales tested, the 11-point scale advocated by Reicheld had the lowest predictive validity of the scales tested.[17] Others have taken issue with the calculation methodology, claiming that by collapsing an 11-point scale to three components (e.g., Promoters, Passives, Detractors), significant information is lost and statistical variability of the result increases.[10] The validity of NPS scale cut-off points across industries and cultures has also been questioned.[18]

See also

References

  1. ^ Call Centers for Dummies, By Real Bergevin, Afshan Kinder, Winston Siegel, Bruce Simpson, p.345
  2. ^ Reichheld, Frederick F. (2003). "The One Number You Need to Grow". Harvard Business Review. {{cite journal}}: Unknown parameter |month= ignored (help)
  3. ^ "The One Number You Need to Grow: Key Ideas From the Harvard Business Review Article by Frederick F. Reichheld," HBR In Brief, retrieved 16 December 2008
  4. ^ "Closing the Customer Feedback Loop," Harvard Business Review, December 2009
  5. ^ "With Its Stock Still Lackluster, G.E. Confronts the Curse of the Conglomerate," New York Times, August 16, 2006
  6. ^ "Another Myth Bites The Dust: How Apple Listens To Its Customers," Forbes.com, August 26, 2011
  7. ^ a b Allianz Capital Markets Day presentation, July 13, 2006
  8. ^ a b P&G Investor Day presentation, December 16, 2006
  9. ^ Intuit Success Story
  10. ^ a b c d "Would You Recommend Us?" Business Week, January 30, 2006.
  11. ^ "Net Promoter Score for Social Gaming," February 28, 2011.
  12. ^ Advocacy Drives Growth: Customer Advocacy Drives UK Business Growth, September 5, 2005
  13. ^ GE Letter to Stakeholders, 2005 Annual Report
  14. ^ Marek, Sue, "On the Hot Seat: Verizon Wireless CEO Lowell McAdam"Fierce Wireless, October 30, 2007, retrieved December 23, 2007.
  15. ^ Timothy L. Keiningham (2007). "A Longitudinal Examination of Net Promoter and Firm Revenue Growth". Journal of Marketing. 71 (3): 39–51. doi:10.1509/jmkg.71.3.39. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help); Unknown parameter |month= ignored (help)
  16. ^ Hayes (2008), "The True Test of Loyalty," Quality Progress, June 2008, 20-26.
  17. ^ Schneider, Daniel; Berent, Matt; Thomas, Randall; Krosnick, Jon (2007): "Measuring Customer Satisfaction and Loyalty: Improving the 'Net-Promoter' Score"; paper presented at the Annual Conference of the World Association for Public Opinion Research (WAPOR); Berlin (Germany)
  18. ^ "Customer advocacy metrics: the NPS theory in practice" Admap, February, 2008.
  • Reichheld, Fred and Markey, Rob. The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World, Harvard Business School Press, 2011.
  • Reichheld, Fred. The Ultimate Question: Driving Good Profits and True Growth, Harvard Business School Press, 2006.
  • Reichheld, Fred. "The One Number You Need to Grow”, Harvard Business Review, December 2003
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