Questions abound about the value of net promoter scores
It’s not unusual to listen to a recording of a retailer’s quarterly earnings call and hear an executive talk about how their business actions have led to improvements in their net promoter score (NPS). The NPS is a metric used by management to determine customer satisfaction or lack thereof with a company at a given point in time. Unlike traditional consumer surveys, however, the NPS process is intended to correlate to business growth.
NPS has a growing legion of advocates in c-suites across America. A recent Wall Street Journal article pointed to Best Buy and Target, two retailers that have seen their businesses strengthen in recent years, as among those companies with executives who cite NPS in earnings calls. Some, such as Best Buy, use it as an element in executive performance evaluations and compensation.
The Journal piece cited a 2003 article published in the Harvard Business Review — “The One Number You Need to Grow” — written by Bain consultant Fred Reichhold, as the origin of NPS. In the article, Mr. Reichhold pointed to the limits of traditional surveys, including “low response rates and ambiguous implications that are difficult for operating managers to act on … senior executives, board members, and investors don’t take them very seriously. That’s because their results don’t correlate tightly with profits or growth.”
The reason NPS works, Mr. Reichold wrote, is that it determines in a single question whether or not a customer is willing to recommend a product or service to someone else. If the answer is “yes”, then growth follows. “No” means no growth.
A number of articles have run in recent months questioning whether corporate enthusiasm for NPS has exceeded its actual utility. The Journal points to studies in 2007 and 2015 that failed to find a connection between NPS and business results. More recent research by COLLOQUY found that only 13 percent of customers who say they would recommend a company actually do so.
A recent article on the Forbes site by Ron Shevlin, managing director of Fintech Research at Cornerstone Advisors, asserts that NPS doesn’t work because it measures intention and not behavior. NPS also comes up short in explaining why customers would recommend a business or take demographics into account, Mr. Shevlin contends.
- The Dubious Management Fad Sweeping Corporate America – The Wall Street Journal
- It’s Time To Retire The Net Promoter Score (And Here’s What To Replace It With) – Forbes
- Is Net Promoter Score flawed? – RetailWire
- The One Number You Need to Grow – Harvard Business Review
DISCUSSION QUESTIONS: Are retailers using the Net Promoter Score metric properly or misusing it? Do you have or know of an alternative that addresses the flaws in NPS and traditional consumer surveys?
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18 Comments on "Questions abound about the value of net promoter scores"
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Founder, CEO & Author, HeadCount Corporation
While NPS and other customer experience/satisfaction measures have their place, I believe that some retailers may be placing too much emphasis on these measures. As the article notes, the issues are that NPS (and other c-sat measures), very often don’t connect to business results. And also as noted, intent often doesn’t translate into action. So the key is to measure actual shopper behavior vs. intent. Shopper conversion is one of those measures.
Chief Executive Officer, Progress Retail
In a world as busy and noisy as it is today, a one-question survey lodged at a customer provides nothing more than a vanity metric for a retailer. I believe the phrase goes: “Correlation does not imply causation.” I think that at any scale, there is nothing more effective than combing through your organization’s Glassdoor, Facebook, or Instagram posts from customers and employees, and getting on the shop floor and actually talking to customers. Is there a technological middle-ground? I’m sure, but there’s no shortage of feedback in today’s world.
Managing Partner, Advanced Simulations
I’m guessing a lot of retailers don’t actually understand NPS. It doesn’t measure whether you will or will not recommend something. It measures your PROPENSITY to recommend. Think about it – who recommends a fast-food restaurant or a gas station? I’ve been asked the NPS question for both in the past week. What it does measure is whether I had a good experience (Yes to BP, no to Dunkies) without directly asking me, because the experience question often elicits positive responses. Retailers need to get that lots of people don’t recommend establishments to anybody, so a failure to recommend is less a comment on the store than on the whole social media environment.
Managing Director, RAM Communications
My grandfather and father, both ShopRite Supermarket operators for years, didn’t agree on a lot when it came to running their business. What they did agree on was the best way to understand the needs and desires of the shopper – talk to her directly. The first thing either of them would do when visiting one of their stores, even before talking with the manager, is go to the checkout and start bagging orders. They’d chat with the customer and that was their consumer survey.
We often overthink things and make them more complicated than they need to be. NPS and related technology that collects data on shopper satisfaction is great, but that one-on-one engagement is better for both the store and the shopper.
Global Retail & CPG Sales Strategist, IBM
I know companies of all types are “betting the farm” and rating employee performance on NPS. I like the overall concept, however there could be an evolution that captures aspects mentioned in the article as time goes on. I see this happening. I do think retailers should use it as-is, because it’s better than some other traditional methods.
Founder & Chairman, International TCG Retail Summit
While NPS is in theory a good KPI for management and customer satisfaction, I am questioning how vulernable the NPS can be to manipulation by a retailer.
President, Spieckerman Retail
NPS is a ridiculous standard (cue rant), not only because it assumes a universal metric but also because it doesn’t take into consideration that some people aren’t rampant recommenders and some categories are less recommendable than others. It has nothing to do with actual quality of product, brand or experience. I take the universal NPS question literally (and surely I’m not the only one). As in, would I literally recommend a specific brand of pain reliever to someone? No. That’s not something I would ever do. I’ve had companies contact me to ask why I gave them a low NPS score. It’s because I literally would never recommend that offering to someone even though I had a good experience, liked the product, etc. It didn’t fall into a category that I could see myself recommending. NPS is not the Holy Grail. Okay, rant over.
Senior Retail Writer
As with any customer survey, NPS can be useful for identifying customers that have had a bad experience and trying to rectify the situation. But I would not recommend using NPS scores as a true indicator of growth. I have worked with businesses that had fantastic NPS scores, but overall sales were low and not improving. I would encourage retailers to have the NPS question as one element of their customer survey, but also include more specific questions and open-ended questions to get more direct and actionable feedback.
President, Rubinson Partners, Inc.
The NPS is incomplete … that is its biggest problem. It cannot be used to measure the interest of likely customers in your brand yet nearly half of many business’ buyer bases come from non-users the prior year. Another problem is that it is highly influenced by how different cultures use scales. An NPS in the U.S. cannot be compared to one from Japan (I have seen global NPS studies and it is impossible.) NPS is simple, that is its benefit and there IS some value to the metric. But the only number you will ever need? Puh-leez …
Vice President, Research at IDC
It’s not really a word of mouth growth metric. Despite the negative press on NPS it is, however, a solid measure of customers’ feelings toward your brand. As a matter of fact the largest challenge with NPS is tying it to immediate business results. The metric is long term and changes in NPS scores can indicate a souring of public perception or improvement of branding in the marketplace, including cultural changes. Successful companies continue to use the metric and it serves a distinct purpose as a canary in the coal mine in addition to its customer focus assessment. Lastly, it serves as a way to communicate to customers that the company values customer opinion and cares about them — even if not used as a metric. It plays a critical role in PR.
CEO, Hanifin Loyalty LLC
From the time that NPS was introduced, I was skeptical that any “one question” could lead to meaningful conclusions that predict business outcomes. This opinion was founded on opinions similar to those cited in the article by the WSJ and Ron Shevlin.
I later reached out to Bain and discussed my questions with Rob Markey, the Bain partner who was leading the customer-centric work originated by Fred Reichheld. You can find this conversation deep in the archives of LoyaltyTruth dot com.
Mr. Markey shared that the value in NPS could be found in an implementation plan for operational change that Bain created in conjunction with the NPS score. In other words, Bain intended the score to serve as a sentinel to kick off operational changes that would lead to improved customer acceptance and satisfaction.
Brands that take action on their NPS score findings may have reason to continue to rely on the metric. Those that merely run the surveys and tout the number as a badge probably won’t see long term-improvement in business results.
Co-Founder & Partner, Ascendant Loyalty
That’s a rich story. Take the score result and then get a consulting assignment. Those who do are fools. If you commit your enterprise toward listening to your customer — voice of customer study, not one simple question — you’ll be much better off. Plus having a commitment to social listening through great providers such as Sprinklr.
Co-Founder & Partner, Ascendant Loyalty
If you are an Influencer or Opinion Leader or Advocate your promoter score matters. If you split your behavior, affinity or spend across the competitive set, you don’t matter. Thus from my perspective it is a black/white issue.
What truly matters is Customer Lifetime Value. I used to be a huge fan of Best Buy. I actually paid to join the Rewards Zone loyalty program when first introduced. I am no longer an advocate because they’ve ruined the program with a weak value proposition, dropped selling music in-store and prices for electronics aren’t competitive. So NPS at Best Buy, if ever asked, would not rate a 10.
Vice President Retail, Tori Richard Principal, Osorio Group LLC, dba JAM with Mike®
Like any “flavor of the month” (and this case of the decade), NPS has significant value but is not a panacea for predicting business success. But when part of a set of measurements that encompass data analytics and human level feedback, NPS can be quite effective. As always, there is no silver bullet for any business issue.
Chief Amazement Officer, Shepard Presentations, LLC
NPS is just one metric to consider. Personally, I’m a big fan of the simplicity of the question. Measuring how likely someone is to recommend tells you a lot. Is it the only question to ask? No, but it’s a great one. Another follow-up question (open-ended) is to ask why. Another question, especially appropriate for the people who give you a 9 or 10 NPS is, “What one thing could we do to make this experience even better?” Finally, as much as the questions on surveys are important, it’s the buyer’s behavior that is even more telling. One very important metric: Does the customer come back?
Partner, Simon-Kucher & Partners
There is some value in calculating your NPS, especially in service oriented industries or retail industries where your customer service is a differentiator. It is usually a good starting point to investigate deeper. Is there a customer group that is consistently giving low scores?
That said, no metric should be used in isolation. We often see companies touting improvements in GP% but then overall profit dollars are down. NPS should be supplemented with metrics that measure true financial growth. KPIs like conversion rates across your engagement funnel, increase in average transaction value, increase in number of units/products in basket, number of unique visitors to the store, same store revenue growth over time.
The other element is to measure yourself against your competitors. You may have good NPS, but that doesn’t mean much if your competitors have great scores.
Vice President - Industry sectors , Capgemini
NPS conducted with a binary question (yes or no answers) definitely scores high on simplicity and as mentioned by the others, is one of the metrics that can be treated as a call to action. However, most of the NPS surveys that I have come across have a rating scale for the answer (how likely are you to recommend our product/service to a customer, rate on a scale of 1 to 10, 10 being most likely and 1 being least likely). Here is where it becomes subjective, if a person has answered 7 (and there are varying interpretations, 8, 9, and 10 are promoters, 6 and 7 are neutrals and anything below 6 indicates a detractor) would she or would she not promote my product? In my opinion, a simple yes/no question on the NPS survey followed by an open-ended why question suits the best.
Vice President, Marketing
Strong companies don’t put all their eggs in one basket. Instead, they look at many different factors to identify success and grow. NPS should be one part of a larger picture. We’ve used it successfully by treating NPS scores as indicators of quality products or areas that need improvement, depending on the customer who is giving the response. Not as the end-all-be-all of growth.