Net Promoter or Net Promoter Score (NPS) 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 and claims to be correlated with revenue growth.
Net Promoter Score 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 "One Number You Need to Grow". NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent.
Net Promoter Score (NPS) measures the loyalty that exists between a provider and a consumer. The provider can be a company, employer or any other entity. The provider is the entity that is asking the questions on the NPS survey. The consumer is the customer, employee, or respondent to an NPS survey.
How it works
The Net Promoter Score, itself, 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.
Those who respond with a score of 9 or 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 in the middle of Promoters and Detractors.: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 towards the total number of respondents, but do not directly affect the overall net score.
Companies are encouraged to follow the likelihood 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. 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.
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.:48–49
The primary purpose of the Net Promoter Score methodology is to evaluate customer loyalty to a brand or company. The ability to measure customer loyalty is a more effective methodology to determine the likelihood that the customer will buy again, talk up the company and resist market pressure to defect to a competitor. Measuring loyalty can be done in several ways, and researchers have asserted that there are better predictors of actual recommendations than asking "likelihood to recommend." Since the purpose of Net Promoter is not to predict actual recommendations alone, but to predict the full suite of financially-advantageous behaviors, proponents of the methodology do not find this troublesome.:65–72
Net Promoter System also requires a process to close the loop. Closing the loop is a process by which 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.:175–198 In order to do this, the survey respondent can not be anonymous (something that can have a negative impact in the willingness to take the survey or to give low grades). The Net Promoter survey will identify customers who need some follow-up, including Detractors, and should automatically alert the provider to contact the consumer and manage the followup and actions from that point.
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 consumers. They further claim that a company's Net Promoter Score correlates with revenue growth. The Net Promoter approach has been adopted by several companies, including E.ON, Philips,:61–65 GE, Apple Retail, American Express, and Intuit. It has also emerged as a way to measure loyalty for online applications, as well as social game products.
A customer is able to leave comments in the surveys sent to them. This is what allows a company to use the VOC (Voice of Customer) to ensure that company is meeting the expectations.
Some proponents of the Net Promoter Score also suggest that the same methodology can be used to measure and evaluate employee satisfaction with their employer, and that tracking and managing the internal score is a way that companies can keep a focus on their culture. This measures more than just an employee's satisfaction with common KPI (key performance indicator) points in the company (what more is is unclear). It claims to include the importance of various factors rather than just focusing on list of workplace issues to improve.:165
Criticism of NPS
While the Net Promoter Score has gained popularity among business executives, it has also attracted quite a lot of controversy from academic and market research circles.
NPS does not provide proof of a causal connection between NPS and growth. Research by Keiningham, Cooil, Andreassen and Aksoy disputes that the Net Promoter metric is the best predictor of company growth.
NPS does not add anything compared to other loyalty-related questions 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. The customer metrics included in this study perform equally well in predicting current company performance."
NPS performs worse than satisfaction "Our results indicate that average satisfaction scores have the greatest value in predicting future business performance and that Top 2 Box satisfaction scores also have good predictive value."  “Overall, we find that the top-2-box customer satisfaction performs best for predicting customer retention and that focusing on the extremes is preferable to using the full scale”.
NPS uses a scale of low predictive validity Daniel Schneider, Matt Berent, et al. found that out of four scales tested, the 11-point scale advocated by Reichheld had the lowest predictive validity of the scales tested.
Culturally-insensitive The validity of NPS scale cut-off points across industries and cultures has also been questioned.
Less Accurate than Composite Index of Questions "A single item question is much less reliable and more volatile than a composite index." "Furthermore, combining CFMs (customer feedback metrics), along with simultaneously investigating multiple dimensions of the customer relationship, improves predictions even further."
Fails to Predict 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."  ”….given the present state of evidence, it cannot be recommended to use the NPI as a predictor of growth nor financial performance.” 
Despite all these shortcoming 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 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 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, ability to follow up with customers) outweigh any statistical inferiority of the approach. Interestingly, 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.:12–13
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- Industry Week — covers GE's efforts to implement NPS (Link accessed on 6 July 2006)
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