Net Promoter Score Should Not Be The Only Measure

Net Promoter Score Should Not Be The Only Measure

The conclusions reached in the following article (that using Net Promoter Score alone is not sufficient to measure customer loyalty) is shared in October 2016 working paper The Fallacy of the Net Promoter Score: Customer Loyalty Predictive Model by University of Cambridge www.cambridgeservicealliance.org.

It is important for cooperatives and credit unions to use multiple sources including big recent purchase analysis, and comment analysis and social media comments.

See more posts at https://www.linkedin.com/in/kevinlytle

5 NPS Myths and How to Overcome Them

customerthink.com/5-nps-myths-and-how-to-overcome-them/

Bob Hayes

I first heard of the Net Promoter Score from Fred Reichheld, one of its co-developers, in a talk he gave at a vendor conference. When he stated that “the NPS is the best predictor of business growth,” my interest was piqued. Why? I have never found evidence in my 20+ years of experience to support that statement. Since his talk and the release of his book on the same topic, I have conducted many studies to examine the merits of the NPS claims. Additionally, other researchers, from both industry and academia, have conducted research on the NPS. Our basic conclusions: the NPS claims are not true and there are a lot of problems with their research claims.

My research addressed several issues surrounding the NPS claims, not just the original claim. Based on mine and others’ research, I present my list of 5 NPS myths. Additionally, I present evidence that debunks each myth as well as what you can do to improve how you measure customer loyalty. You’ll see that the NPS is not all that it’s cracked up to be.

5 NPS Myths

Myth 1: NPS is the best predictor of growth

Fact: The NPS is not the best predictor of growth. Keiningham et al. (2007), looking at the personal computer industry, found that satisfaction is just as good as the NPS at predicting growth. They also 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.

What you can do: Use other loyalty questions. The use of the other two common loyalty questions, “Overall sat” and “Buy again,” result in the same conclusions as when you use the NPS.

Myth 2: Net scores are easy to understand

Fact: Net scores are ambiguous; You can arrive at the same NPS score using different Promoter and Detractor scores. Net score creates a metric on an entirely new scale (from -100 to 100) that is different from the original customer rating (0 to 10). Additionally, CX professionals exhibit bias when interpreting summary metrics. Also, the segments used to calculate the NPS are arbitrary. Specifically, while the NPS formally defines Promoters as customers who gave ratings of either 9 or 10, we found that Promoters could also include respondents who gave a rating of 8, 9 or 10.

What you can do: Use mean or top-box scores as summary metrics instead of net scores. The use of the mean keeps the group metric on the same scale of measurement as the original ratings (0 to 10). Train your employee on statistics and statistical thinking (long-term).

Myth 3: The NPS is the only loyalty question you need in your survey

Fact: Customer loyalty is multidimensional; it is not a single thing and you simply can’t measure “loyalty” with a single question. There are really three different types of customer loyalty. The three types of loyalty are: Retention, Advocacy and Purchasing. In a nationwide study asking over 1000 customers about their current network operator, different loyalty questions were predictive of different types of objective business growth metrics:

  • Retention loyalty questions were the best predictor of future churn rate
  • Advocacy loyalty questions (including the recommend question) were a good predictor of new customer growth
  • Purchasing loyalty questions were the best predictor of Average Revenue per User (ARPU) growth

What you can do: Measure all types of customer loyalty that are relevant to your business. Consider the different ways your customers can contribute to the bottom line and ask about those types of loyalty behaviors. Here is a more comprehensive list of customer loyalty questions you can use in your next customer survey.

Myth 4: High correlation between NPS and customer experience (CX) illustrates importance of CX in driving recommendations

Fact: The correlation between NPS and CX is artificially inflated because both are measured using the same method (a survey asking for self-reports; both use similar rating scales). The true correlation between CX satisfaction and customer loyalty is much lower than what is indicated when self-reported metrics are used to measure both variables. As your loyalty metric becomes more objective (asking about number of people to whom you recommended, for example), the correlation between “recommendations” and CX decreases significantly.

What you can do: Use objective loyalty measures in your analysis. Integrate your disparate data silos (e.g., CX system, CRM, Mixpanel) to link objective loyalty metrics (e.g., number products purchased, amount spent) with CX metrics (satisfaction with product, service). When you analyze these data, the results will be a better reflection of reality.

Myth 5: The claim that “NPS is the best predictor of growth” is widely accepted by CX professionals

Fact: In a survey of CX professionals, Only 25% of CX professionals said they believe the claim that the NPS is the best predictor of growth. This finding is more remarkable for CX professionals from loyalty leading companies. Of CX professionals from loyalty leading companies, only 14% agree with the NPS claim. Of CX professionals from loyalty lagging companies, 42% agree.

What you can do: Share your concerns about the NPS (along with the supporting research) with your CEO and CMO. Sharing the alternatives of the NPS with them to help move your loyalty measurement program forward.

Summary

This post summarizes scientific evidence that debunks the popular beliefs about the NPS. I presented 5 popular beliefs about the NPS and show why those beliefs are not supported by evidence. The evidence shows that the NPS: 1) is not the best predictor of business growth, 2) is difficult to understand, 3) is insufficient in capturing all the components of customer loyalty, 4) inflates the importance of CX on loyalty and 5) is not widely accepted by most CX professionals. These myths are presented in Table 1.

Your job may require you to use the NPS. Your livelihood might depend on selling the NPS. If you want to keep using, supporting, loving the NPS, go ahead. I really don’t care what loyalty metric you choose to use. What I do care about is sharing evidence-based conclusions and helping companies optimize the use of their data. The quality of your customer analytics is only as good as the metrics you analyze. In this post, I shared the empirical evidence regarding the myths of the NPS and what you can do to overcome them.

References

Hayes, B. E. (2008). Net promoter score debate: The measurement and meaning of customer loyalty. Business Over Broadway.

Hayes, B. E. (2008). Customer feedback programs best practices: An empirical investigation. Business Over Broadway.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *







Subscribe To All New Blog Posts

Join our mailing list to receive valuable news and updates about member engagement

You have Successfully Subscribed!