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?