The Ultimate Decision
The Promise:
It came upon us as a promise, wrapped in the innocence of simplicity. The inner core of a brand captured miraculously in a simple question.
“How likely is it that you would recommend us to a friend or colleague.”
The Net Promoter Score was born. The brainchild of Fred Reichheld, a Bain & Co. Fellow and Dr. Laura Brooks of Satmetrix Systems. The sort of material that Harvard Business Review writes their cases about. In fact HBR did publish an article in Dec 2003 with the eye catching title “The one number you need to grow”. The equivalent of a viral campaign unfolded, supplemented with a book… global speaking engagements.
Just as a black hole, the simplicity drew everyone to it. The promise, incubated by field studies at 400 businesses (turns out to have been 50+ in the end) which held that if we managed our customers properly – our business would grow. To do so only required our focus on customers who are either our promoters (scoring you a 9 or 10), passives (scoring you a 7 or 8) or detractors (scoring you 6 or less). Wait a minute – that’s all our customers. Exactly, but we’ll get to that again at the conclusion.
The Formula: % of Promoters - % of Detractors = Net Promoter Score (NPS)
Therefore if 50% of your respondents were promoters and 20% were detractors – you netted out at a score of 30. The higher the score the better.
NPS we were told would accurately predict a company’s ability to impress customers, turn customers into advocates, and -- in turn -- become an indicator of potential business growth. Scientific proof that this simple metric was ultimately more powerful and meaningful than any other management theory about customer satisfaction, customer retention, passion, loyalty or …well anything. So simple even a CEO could follow it ;-^)
And so the market embraced the theory. From all corners of the world. Heavyweights like GE (Real Estate division) Philips, HSBC, IBM (Enterprise Content Management), LEGO, Enterprise Car Rental, Intuit, Schwabb, American Express, Microsoft and others.
A simple approach, developed by respected accreditted professionals, endorsed by a world class university adopted by companies. What’s so bad about any of this?
The Questions:
Cracks in the foundation started to develop because of the lack of support to the contentions. Namely that the NPS was not a strong predictor, that there was evidense of research bias in the support used to substantiate the NPS and that the ACSI was not uncorrelated with firm growth..
“We find no support for the claim that Net Promoter is the ‘single most reliable indicator of a company’s ability to grow.’ The clear implication is that managers have adopted the Net Promoter metric for tracking growth on the basis of the belief that solid science underpins the findings and that it is superior to other metrics. However, our research suggests that such presumptions are erroneous. The consequences are the potential misallocation of resources as a function of erroneous strategies guided by Net Promoter on firm performance, company value, and shareholder wealth.”
Source: Timothy Keiningham et al. July 2007 A Longitudinal Examination of Net Promoter and Firm Revenue Growth
Other studies, other experts, opinion leaders, bloggers (see below) added their voices to the boisterous cacophony – worthy of the NYSE trading floor on a black bear day.
Undaunted, NPS supporters countered (see below) with their own assertions the NPS being as good as more complex measures and for the most part avoiding any direct discussions surrounding the statistical annomalies brought forward by Keiningham.
In this quote, Dr. Masden acknowledges being part of the team at the London School of Economics that vetted the NPS Score and asserts its ongoing validity as a reliable method of linking customer loyalty to growth.
"As far as the current debate goes, anyone who has read the information being disseminated from the “anti-Net Promoter” camp quickly comes to the realisation that the one Net Promoter question is, at the very least, just as good as more complex proprietary measures, that are tough to translate to the average executive and employee. But that leaves me questioning: why are we hung up on the measurement? The real conversation needs to be about how to get an organisation to be customer-centric and what that can mean for a company’s future”
Source: Clickadvisor.com on Sept 17 Net Promoter: the ultimate debate on customer loyalty
The Stalemate:
There is too much of an industry and ‘cult’ established around the NPS for it to dissapear on the basis of the allegations laid against them. In defence and defiance they point out that we are all ultimately pursuing the same path. True.
One can argue that the NPS may have accelerated the customer centricity movement, the other important benefit is that in its simplicity it has refocussed the dialogue on using metrics which can be widely disseminated and easily understood. Well in the words of Tim Keiningham
“ I too believe that loyalty consultants and researchers have over-complicated the message (and the analyses) with more advanced statistics than it took to get the Apollo space missions to the moon. It makes it impossible for management to understand, communicate, and rally support. This is ridiculous!”
The Ultimate Decision:
Believe it or not up to this point was the easy part. The hard part is deciding for yourself what happens next.
Will there ever be one metric to fit all needs? Highly improbable – and any contenders will not be allowed to make unsubstantiated claims. Instead of waiting for the new simple metric, we must continue to move forward with as simplified a system we can devise, implement and gain compliance with.
There are many competing schools of thought (Customer Experience Management, CRM, Loyalty/Continuity, Value Drivers, Image, WoM) reflecting the different successful business models/brands in the market.
To understand which approach will work best for your brand you must identify three things:
1. who your profitable customers are
2. what kind of relationship your profitable customers wish to have with your brand
a.Share of Wallet: the traditional CRM-centric make me a compelling (price/promotional) offer and I’ll buy it from you (or perhaps your competitors) – a brand relationship centered on the transaction.
b.Share of Mind: the traditional marketing promotions/communications approach – focussing on the key value proposition – a rational based brand relationship.
c.Share of Heart: Customer Experience Management – How people feel about the brand experience. Experience seen as a price mitigator and continuity reinforcer – an emotion based brand relationship.
d.Share of Life: How customers see the brand as a longer term partner for their category requirements, solutions and corporate/sustainability responsibility – an ‘adult/mature’ brand relationship.
3. within the relationship type identify the activities the enterprise must do to instill the longer-term repeat purchase pattern it seeks.
The key in my opinion is instead of defining your brand as an advocate of a particular ‘school of thought’ and then trying to mold your customers to fit within that model, we must instead look and manage this from the customer’s perspective. Therefore come to recognize the ALL of these relationship types exist simultaneously among different groups of your customers. What and how you communicate will be best served by understanding the type of customer they are first and from there make the ultimate decision as to how to relate and evolve with your customers.
Cheers
Miro
Suggested Reading:
NPS Adovcates:
The Ultimate Question. Driving Good Profits and True Growth. Fred Reicheld
www.satmetrix.com
www.netpromoter.com
Dr. Laura Brooks’s – VP Satmetrix latest blog posting
The Satmetrix white paper describing the research
Research conducted by the London School of Economics
Dr. Marsden from Clickadvisor.com on Sept 17 Net Promoter: the ultimate debate on customer loyalty
NPS Contrarians
Loyalty Myths: Hyped Strategies That Will Put You Out of Business and Proven Tactics That Really Work, Tim Keiningham, Terry Varga, Lerzan Aksoy, Henri Wallard
A Longitudinal Examination of Net Promoter and Firm Revenue Growth
January 2007 Maritz Research White Paper
