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.

NPS Methodology

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)

NPS Claims

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:

1. The NPS is “the best predictor of growth,” (Reichheld, 2003)
2. The NPS is “the single most reliable indicator of a company’s ability to grow” (Netpromoter.com, 2007)
3. “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. [1]

Recent Scientific Challenges to NPS Claims

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).

Problems with NPS Research

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.

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 (2^nd 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.

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[1] http://resultsbrief.bain.com/videos/0402/main.html