Net Promoter®

...The Ultimate Question: Driving Good Profits and True Growth.

We have a question of our own: Is Net Promoter® really "the ultimate question?"

There's no doubt that it's received a groundswell of attention lately. Many people are talking about it, and many companies are giving it a try. Because of the sudden interest in this new metric, we set out to take a closer look at Net Promoter® : the good and the bad.

How It Works

Building on the concept of "word of mouth," Net Promoter® asks one question, “Would you recommend us to a friend or colleague?” which customers answer on a scale of 0 to 10. Responses are grouped into three broad categories: Detractors, Passives and Promoters. Subtract Detractors from Promoters; ignore Passives…and you have a Net Promoter® Score.



Net Promoter® is simple, which is why it’s so attractive. But, is simpler always better?

Let’s take a closer look.

Pros

• Recommendation is a valuable customer question. Net Promoter® asks a critical question about likelihood to recommend, which is an output of satisfaction and a proxy for loyalty.
• Customer-centric metrics help companies respond more effectively to customer needs and wants. The popularity of the Net Promoter® concept is focusing top management on customer metrics, which will improve the responsiveness of the company to their customers in the long run.

Cons

1. Lack of evidence that Net Promoter® Score drives growth. The Ultimate Question claims Net Promoter® Score drives growth and as proof, provides tables charting Net Promoter® Scores against revenues for a handful of selected companies and industries showing companies with higher Net Promoter® scores have higher revenues. However, the revenue data is measured for 1999-2003 while Net Promoter® Scores are measured only in 2003, which means that the increased Net Promoter® Scores followed the revenue increases, not the other way around.
   
   This confusion between correlation (two things are related) and causation (one thing causes another) is common. But, it’s a fatal flaw when applied to a customer metric used to manage a business.
   
   Recent research confirms similar conclusions about Net Promoter® Scores.
2. Lacks statistical integrity. Net Promoter® measures recommendation using a precise 0-10 point response scale. But, the metric loses precision and accuracy when responses are grouped into three broad categories: Promoters (scores of 9 and 10), Passives (scores of 7 and 8) and Detractors (scores of 0 to 6). This simplifying device causes the error interval to multiply 9-fold.
   
   Recent research shows that Net Promoter® is unable to detect changes in performance and calls into question the accuracy of the Net Promoter® scores.
3. “Detractors” are mischaracterized. The Net Promoter® concept presumes those characterized as “detractors” will actively communicate negative things about the company. Recent research among the Top 40 online retailers confirms that these presumptions are not borne out; in fact, Net Promoter® overstates “detractor” behavior by at least 91%.
4. Recommendation behavior is highly subjective. Recommendation intent and behavior varies based on the person’s propensity to make recommendations to others, the audience and the product or company. Some products or services reflect negatively on the potential recommender (such as credit consolidation, substance abuse treatment, etc.), which undermines active recommendation. In addition, people tend to recommend things that are popular, like best-selling books or top-grossing movies to appear “cool” or “in the know”. Finally, recommendation can be influenced by incentives, hence the rapid rise of word-of-mouth marketing firms like BzzAgent, eDiets and other incentives for referral acquisition programs. Presumably, gaming the recommendation system has the same negative effects as gaming the customer satisfaction system.

Download an article with more information on the pros and cons of Net Promoter®.

(Net Promoter® is a registered trademark of Satmetrix Systems, Inc.)