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Net promoter score

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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.[citation needed] 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.[citation needed] 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 approach has been adopted by several companies, including Australia Post,[12] Siemens,[13] E.ON,[14] Philips,[5]: 61–65  GE,[15] Apple Retail,[16] American Express,[17] IBM,[3] Vanguard,[3] and Intuit.[18] It has also emerged as a way to measure loyalty for online applications, as well as social game products.[19]

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.[20] 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.[18] 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.[21]

Research by Keiningham, Cooil, Andreassen and Aksoy disputes that the Net Promoter metric is the best predictor of company growth.[22] 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.[23] The customer metrics included in this study perform equally well in predicting current company performance."[24]

No evidence for 11-point scale superiority

While several studies, such as one by Preston and Colman,[25] 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 .[26]

Reliability compared to a composite index of questions

"A single item question is much less reliable and more volatile than a composite index."[27] "Furthermore, combining CFMs (customer feedback metrics), along with simultaneously investigating multiple dimensions of the customer relationship, improves predictions even further."[24]

Lack of 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."[28] "…given the present state of evidence, it cannot be recommended to use the NPI as a predictor of growth nor financial performance."[29]

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."[30] 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.

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. ^ a b c d e f g Colvin, Geoff (18 May 2020). "The simple metric that's taking over big business". Fortune. Retrieved 3 June 2020.
  4. ^ a b Reichheld, Frederick F. (December 2003). "One Number You Need to Grow". Harvard Business Review. PMID 14712543.
  5. ^ a b c d e f g h i j k l 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.
  11. ^ "Closing the loop". The Net Promoter System. Bain & Company, Inc. Retrieved 9 August 2015.
  12. ^ "Our performance: Improving our customer experience" (PDF). Australia Post Annual Report 2014. pp. 20–21.
  13. ^ "Management and Facts - Siemens Global Website". www.siemens.com. Retrieved 7 October 2015.
  14. ^ "Becoming our customers' partner of choice". E.ON Sustainability. E.ON. Archived from the original on 10 September 2015. Retrieved 13 August 2015.
  15. ^ "With Its Stock Still Lackluster, G.E. Confronts the Curse of the Conglomerate," New York Times, 16 August 2006
  16. ^ "Another Myth Bites The Dust: How Apple Listens To Its Customers," Forbes.com, 26 August 2011
  17. ^ Colvin, Geoff. "How can American Express help you?". Fortune Magazine. Time Inc. Retrieved 13 August 2015.
  18. ^ a b "Would You Recommend Us?" Business Week, 29 January 2006.
  19. ^ "Net Promoter Score for Social Gaming," 28 February 2011.
  20. ^ "Maurice FitzGerald - Satmetrix". September 2015. Archived from the original on 18 December 2015. Retrieved 11 December 2015.
  21. ^ 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.
  22. ^ 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.
  23. ^ Hayes (2008), "The True Test of Loyalty," Quality Progress, June 2008, 20–26.
  24. ^ a b 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
  25. ^ 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.
  26. ^ Schneider, Daniel; Berent, Matt; Thomas, Randall; Krosnick, Jon (June 2008). "Measuring Customer Satisfaction and Loyalty: Improving the 'Net-Promoter' Score" (PDF). van Haaften. Berlin, Germany: Annual Conference of the World Association for Public Opinion Research (WAPOR). Retrieved 13 August 2015.
  27. ^ Hill, Nigel; Roche, Greg; Allen, Rachel (2007). Customer Satisfaction: The customer experience through the customer's eyes. London, England: Cogent Publishing. p. 7. ISBN 978-0-9554161-1-8.
  28. ^ 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.
  29. ^ 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.
  30. ^ Lisch, Ralf (2014). Measuring Service Performance. Practical Research for Better Quality. Routledge. pp. 147, 152–155. ISBN 9781472411914.
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