Should You Use Net Promoter Score as a Metric?

One of the strongest selling points of NPS is its simplicity. But NPS may not work any better than other metrics that capture different facets of the customer experience.

Reading Time: 5 min 

Topics

Already a member?
Not a member?
Sign up today
Member
Free

5 Free Articles per month, $6.95/article thereafter. Free newsletter.

Subscribe
$75/Year

Unlimited digital content, quaterly magazine, free newsletter, entire archive.

Sign me up

Since 2003, the net promoter score (NPS) has become one of the most widely used marketing metrics. Companies in industries as diverse as telecommunications, banking, and car rental have embraced NPS as a way to monitor their customer service operations. Consumers answer a simple question (How likely is it that you would recommend X to a friend or colleague?) on a scale from 0 to 10, with 10 being the most positive. Customers who answer 9 or 10 are considered promoters; those who answer 6 or less are rated as detractors. The score is the percentage of promoters minus the percentage of detractors.

Frederick F. Reichheld, the business strategist who pioneered NPS, has argued that NPS is not just a metric but also a system that allows managers to use the scores to shape managerial actions.1 Advocates explain that the feedback is the source of many potential benefits. For example, a senior executive we interviewed argued that adopting NPS facilitated cultural shift at his company from one that was highly bureaucratic toward one that was more customer-centric.

One of the strongest selling points of NPS is its simplicity. It’s easy for managers and employees to understand the goal of having more promoters and fewer detractors. However, there are weaknesses in how the theory has actually been presented to managers. In Reichheld’s original article, NPS was described as “the one number you need to know to grow.”2 It was associated with “profitable growth” (which implies bottom-line growth). However, the supporting evidence relied on revenue growth (in other words, top-line growth). In another example in the net promoter literature, a customer’s worth to Apple has been described as the customer’s spending, ignoring the costs associated with serving the customer.3

Unfortunately, it’s easy to imagine how to increase the net promoter score while destroying even top-line growth. For instance, in product categories where the demand is relatively inelastic (such as utilities), slashing prices will likely increase the net promoter score because customers will be happier and recommend the company. Yet, under this scenario, revenue (as well as profitability) will decline.

Read the Full Article

Topics

References

1. F. Reichheld and R. Markey, “The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World” (Boston: Harvard Business Review Press, 2011).

2. F. Reichheld, “The One Number You Need to Grow,” Harvard Business Review 81, no. 12 (December 2003): 46-54.

3. R. Owen and L.L. Brooks, “Answering the Ultimate Question: How Net Promoter Can Transform Your Business” (San Francisco, California: Jossey-Bass, 2009).

4. T.L. Keiningham, B. Cooil, T.W. Andreassen, and L. Aksoy, “A Longitudinal Examination of Net Promoter and Firm Revenue Growth,” Journal of Marketing 71, no. 3 (July 2007): 39-51.

5. G. Pingitore, N.A. Morgan, L.L. Rego, A. Gigliotti, and J. Meyers, “The Single-Question Trap: The Net Promoter Score Has Limitations in Predicting Financial Performance,” Marketing Research 19, no. 2 (2007): 9-13.

6. Reichheld and Markey, “The Ultimate Question 2.0,” 231.

7. Ibid, 259.

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.