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The Net Promoter Debate: A Summary

The Net Promoter Score (NPS) is used by many of today’s top businesses to monitor and manage customer relationships. Fred Reichheld and his co-developers of the NPS say that a single survey question, “How likely are you to recommend Company Name to a friend or colleague?”, on which the NPS is based, is the only loyalty metric companies need to grow their company. Despite its widespread adoption by such companies as General Electric, Intuit, T-Mobile, Charles Schwab, and Enterprise, the NPS is now at the center of a debate regarding its merits.

The NPS is calculated from a single loyalty question, “How likely are you to recommend us to your friends/colleagues?” Based on their rating of this question using a 0 to 10 likelihood scale where 0 means “Not at all Likely” and 10 means “Extremely Likely,” customers are segmented into three groups: 1) Detractors (ratings of 0 to 6), 2) Passives (ratings of 7 and 8) and 3) Promoters (ratings of 9 and 10). A company can calculate its Net Promoter Score by simply subtracting the proportion of Detractors from the proportion of Promoters.

NPS = prop(Promoters) – prop(Detractors)

Fred Reichheld, the co-developer of the NPS (along with Satmetrix and Bain & Company) has made very strong claims about the advantage of the NPS over other loyalty metrics. Specifically, they have said:

The NPS is “the best predictor of growth,” (Reichheld, 2003)

The NPS is “the single most reliable indicator of a company’s ability to grow” (Netpromoter.com, 2007)

“Satisfaction lacks a consistently demonstrable connection to… growth” (Reichheld, 2003)

Reichheld support these claims with research displaying the relationship of NPS to revenue growth. In compelling graphs, Reichheld (2006) illustrates that companies with higher Net Promoter Scores show better revenue growth compared to companies with lower Net Promoter Scores. Reichheld sites only one study conducted by Bain & Associates (co-developers of the NPS) showing the relationship between satisfaction and growth to be 0.00.

Researchers, pointing out the NPS claims are only supported by Reichheld and his co-developers, have conducted rigorous scientific research on the NPS with startling results. For example, Keiningham et al. (2007), using the same technique employed by Reichheld to show the relationship between NPS and growth, used survey results from the American Customer Satisfaction Index (ACSI) to create scatterplots to show the relationship between satisfaction and growth. Looking at the personal computer industry, they found that satisfaction is just as good as the NPS at predicting growth. Keiningham et al. (2007) found the same pattern of results in other industries (e.g., insurance, airline, ISP). In all cases, satisfaction and NPS were comparable in predicting growth.

Still, other researchers (Morgan & Rego, 2006) have shown that other conventional loyalty measures (e.g., overall satisfaction, likelihood to repurchase) are comparable to NPS in predicting business performance measures like market share and cash flow.

Contrary to Reichhheld, other researchers, in fact, have found that customer satisfaction is consistently correlated with growth (Anderson, et al., 2004; Fornell, et al., 2006; Gruca & Rego, 2005).

The recent scientific, peer-reviewed studies cast a shadow on the claims put forth by Reichheld and his cohorts. In fact, there is no published empirical supporting the superiority of the NPS over other conventional loyalty metrics.

Keiningham et al. (2007) aptly point out that there may be research bias by the NPS developers. There seems be a lack of full disclosure from the Net Promoter camp with regard to their research. The Net Promoter developers, like any research scientists, need to present their analysis to back up their claims and refute the current scientific research that brings their methodological rigor into question. To date, they have not done so. Instead, the Net Promoter camp only points to the simplicity of this single metric which allows companies to become more customer-centric. That is not a scientific rebuttal. That is marketing.

To receive the complete NPS white pape, please contact me at bob@businessoverbroadway.com.

Bob E. Hayes, Ph.D.


References

Anderson, E. W., Fornell, C., & Mazvancheryl, S. K. (2004). Customer satisfaction and shareholder value. Journal of Marketing, 68 (October), 72-185.

Fornell, C., Mithas, S., Morgensen, F. V., Krishan, M. S. (2006). Customer satisfaction and stock prices: High returns, low risk. Journal of Marketing, 70 (January), 1-14.

Gruca, T. S., & Rego, L. L. (2005). Customer satisfaction, cash flow, and shareholder value. Journal of Marketing, 69 (July), 115-130.

Hayes, B. E. (1997). Measuring Customer Satisfaction (2nd Ed.). Quaility Press. Milwaukee, WI.

Ironson, G.H., Smith, P.C., Brannick, M.T., Gibson W.M. & Paul, K.B. (1989). Construction of a "Job in General" scale: A comparison of global, composite, and specific measures. Journal of Applied Psychology, 74, 193-200.

Keiningham, T. L., Cooil, B., Andreassen, T.W., & Aksoy, L. (2007). A longitudinal examination of net promoter and firm revenue growth. Journal of Marketing, 71 (July), 39-51.

Morgan, N.A. & Rego, L.L. (2006). The value of different customer satisfaction and loyalty metrics in predicting business performance. Marketing Science, 25(5), 426-439.

Netpromoter.com (2007). Homepage.

Reichheld, F. F. (2003). The One Number You Need to Grow. Harvard Business Review, 81 (December), 46-54.

Reichheld, F. F. (2006). The ultimate question: driving good profits and true growth. Harvard Business School Press. Boston.

Discussion topic?

Is this a topic for discussion or an attempt at promotion?

The Net Promoter Debate: A Topic For Discussion

My posting is a topic for discussion. There is much hype right now regarding the Net Promoter Score (NPS). I wanted to convey as much as I could so that people who don't know much about the topic can get a good idea about this topic. Still, there is much that I didn't cover on the area (hence a reference to my white paper).

I am very interested in learning about what other's opinions are on this topic. I've read many postings from other sources (e.g., AMA) and there is no credible rebuttal against the critical research coming out against the NPS. Considering quirk.com is a great marketing research information source, I thought it would be an excellent forum to seek opinion on this important, timely topic.

I'll Chip In

Well Bob, I'll chip in with a couple of comments.

Regarding "which approach is better," I think that the jury is still out as to which approach is a better predictor of growth. My opinion -- and it is strictly that -- is that each camp has their BVDs in a bunch because: a) NPS has gotten so much favorable press, and they are striving to protect it, and b) the "Sat Camp" is jeolous of the rave press for NPS and the resulting decreased business that results from clients suggesting that they only need to measure a single item to get the entire picture.

It is the latter point that concerns me the most. Let's assume for the sake of discussion that NPS is a good, valid growth indicator. I know that you dispute this, but let's assume that it is so. Let's further assume that you are a company using NPS and your score is in the tank. Now what do you do? Basically, you guess as to what is the cause of your poor score, and hope that you hit the target and implement processes to that improve your NPS. Maybe you'll be lucky and hit the mark, but the odds of doing so have been dimished because of your limited information.

Different methods for different situations.

I don't know why people insist on matching methods as if one is the final answer and the other is useless. Clearly these measures are:

1. Highly correlated with one another in most cases.
2. Going to differ depending on the nature of the business, their approach to marketing, their stage in the business cycle and other factors.

For a new company fighting for market share and awareness, certainly "likelihood to recommend" is going to be highly correlated with growth. But as that company matures, satisfaction may become more important. It depends on whether you want to gain new customers or keep the ones that you already have. Both metrics are important. One may be more important than the other at different times.

Let's not forget, Likelihood to Return. This too, has been touted as the ultimate metric. But what does it measure? Suppose you have a regional business. Does likelihood to return measure customer loyalty, or the number of out-of-town customers you attract?

If you have a luxury resort hotel, where many customer come for their once in a lifetime vacation, perhaps likelihood to recommend is a better metric than likelihood to return.

Suppose you have a business with little immediate competition. Likelihood to return may be very high, simply because the consumer has no choice. But that same company could be vulnerable to new competition if the customers are not satisfied.

Suppose you have a business where the customers are extremely satisfied. But if your hours are irregular or parking is bad, your customers may still not return.

Suppose you have a business with loyal customers, but your product is something that people simply do not normally talk about, for example, toilet tissue. People may be extremely satisfied and very likely to repurchase, but they aren't going to tell all the neighbors about it.

All of these are great metrics. (And let's not talk about "Expectations".) I just wish people would stop touting one over the other. That just leads to clients who demand the inappropriate metric for their business, or, worse, surveys that are cluttered with five or six overall performance metrics.

Losing my job due to NPS

I work as a Senior Analyst in customer satisfaction at a telecom. I am losing my job due to NPS.

My new CEO read Fred's book and has decided to eliminate all surveys except for the post transaction IVR system. This is not a book about one metric - it's a book that encourages the slashing of research departments. The reason it resonates with so many CEOs, is because they have dollar signs in their eyes. CEOs can often be short sighted, and given any encouragement not to look past next quarter, they will jump on board.

The problem is that our management are not educated about the proper use of market research. Their only pressures are next quarter's results, and staying on the good side of their benefactors.

It's too bad my CEO didn't read more of his book about employee and customer loyalty improvements. I am one of the engaged, loyal employees who goes out of my way to help others and has actual skills, and has not been rewarded. Now, I am losing my job.

This problem plagues many companies and is the real ultimate question: Why do they continue to allow the lack of productivity due to inadequate reward systems?

Now there's an opportunity for profits!

NPS scores - business to business

All of the published NPS scores I've seen are for consumer products companies. Is anyone aware of scores for office products or other b2b applications?

(It's incredible that so many seem to think that customer satisfaction research is not necessary if you know your NPS. It's like saying I don't need a doctor because I have my own thermometer.)

Thank you.

Jeff Gutenberg

Used All Over

I have seen it used in many b2b applications -- not specifically for office products, but many other b2b..

The Net Promoter Debate ...

Well put, Jeff!

I must say, I/we have been put in the position many times to come up with a lone metric to capture the pulse of the consumer/buyer/etc. Either it's based on a single, million-dollar question, or it's a derived measure (an index or weighted combination of survey responses). Not that there's anything wrong with that.

But, you're absolutely right (as was the other poster) ... this simply begs for the reason(s) that lead to the overall measure. So, while I would still agree that a single measure has value as an overall "pulse," you still need to understand what's causing that overall measure to go up or down.

That said, I'm not so inclined to be baited by the NPS vs. Sat debate. My concerns right now ... and I'm on the client end ... involve what behavior or actions we are presenting in contact with our customers that lead to their "perceptions" of good/bad service. That is, we fully believe perceptions impact buying behavior, but how do we change those perceptions if we don't know how they were formed?

Bob, good topic!

Thanks,

John

Not A Silver Bullet

There is no measure that will be a silver bullet by itself. Sure, they have found a component of commitment that is strong, but there are others measures out there that look at the different angles of a company's strength/health.

For instance, you might be top2box for recommending, but what if you are not satisfied with the product for your own situation (shampoo touted for all, but works better for oily hair). As in, I can see my friend using this, but not me. She would stop using the product, but her friend "might" start. In this sense, there is a net gain of 0, but it would still count as a positive in the NPS.

I think it has caught on only because it is very simple to understand. It does have some validity behind it, but it doesn't pass the logic test of being the only measure needed. I use the recommendation measure in combination with others to develop a more robust model.

It is also very misleading to think you wouldn't need other measures/research in combination. Sometimes you can only discover the real issues through specific ratings and open-end responses. Good luck to those that don't listen to the ongoing needs and issues of their customers. I guess you could just keep watching your score go down and hope the next change you make works.

If what you say about them not releasing the research and backing up their claims, then I simply don't believe NPS is what they say it is. That is not science!

Net Promoter Score – The Search for the Magic Pill

NPS has been heralded by its creator as the proverbial magic pill. It is our belief that no such pill exists. Developing satisfied customers takes dedication, commitment and work, plain and simple. Tracking an arbitrarily derived number is not going to get the job done.
Howard Ploman
President
InfoQuest International

For the full 9 pages of analysis, please go to http://www.infoquestcrm.co.uk/pdfs/Net%20Promoter%20Score.PDF