What exactly is it?
As a descriptor, net promoter score (NPS) was coined by author, speaker and business strategist Frederick Reichheld in the Harvard Business Review back in 2003. His claim was simple: NPS “… is the one number you need to grow”.
So what did he mean by this? According to Vanessa Thompson, senior vice president, CX insights at Bluewolf, NPS is a single measure of customer loyalty. “It’s one question – ‘How likely is it that you’d recommend [this company] to a friend or colleague?’ – that delivers a single numerical response from zero to 10, with those that score a 9-10 being ‘promoters’. You also have ‘passives’ and ‘detractors’. NPS aims to isolate the most satisfied customers so a company can focus on those customers in order to drive profitable growth.”
NPS gives you a company score, but the question is: who’s accountable to fix it?
The main premise is that satisfied customers will either increase the amount they spend or will refer others to the business, or both. “This covers two business outcome strategies for profitable growth that many companies struggle with: new customer acquisition and up-sell or expansion within an existing customer base,” explains Bluewolf’s Vanessa.
According to Martin Häring, CMO at Misys, NPS is such a big deal in some companies that some CMOs and other c-suiters are currently remunerated according to their NPS score.
What are its benefits?
Were Reichheld’s bold claim ( “the one number you need to grow”) well received at the time? Well, in a word, yes. “NPS was widely embraced by brands,” explains Dr Nektarios Tzempelikos, senior lecturer in marketing, IIMP Research Fellow, in the Lord Ashcroft International Business School at Anglia Ruskin University. “First, it’s a simple and easy-to-understand measure; there are no complicated algorithms or diagrams. It’s just a single question that’s used to predict customer loyalty. Secondly, the whole idea that NPS captures is very simple: if more customers are happy with your products or services than unhappy (or neutral), your company will grow.”
Customer satisfaction surveys commonly happen once a year. With NPS, organisations can capture a quick gauge easily
Because of its simplicity, NPS is also relatively easy to repeat regularly, with many companies running a survey once a month. “With a customer satisfaction survey, the process can often be long, and completion rates can be low, which in turn means executives pay less attention to the responses,” explains Vanessa. “Also, customer satisfaction surveys commonly happen once a year. With NPS, organisations can capture a quick gauge easily.”
For Caitlin Ridge, director of corporate marketing, Lattice Engines, NPS helps her company understand the broad areas in which they’re doing well and those in which they’re not. “Because we’re in an emerging space (not everyone fully understands predictive), we have to make sure we have happy customers that are seeing success on our platform, and that they’re talking about how happy they are. Without that, our reference network would go down the drain.”
So what are the limitations of NPS?
1. An inability to predict company growth
First off, NPS is all about recommendations. But are recommendations really enough to tell you how you’re doing as a brand? “Reichheld’s claim is that recommendations are the one thing that companies need to attain in order to drive business growth,” says Dr Tzempelikos. “But if I lose 30% of my customers in a year – but most of those who stay say they’ll recommend me – does that mean we’ll still be growing?”
Martin agrees: while the tool’s simplified nature is what initially led to take up, it’s also been criticised for not being a true indicator of company growth. “When you read some of the literature on NPS, you’ll see that there’s no proven correlation between NPS score and industry growth – after all, you could have a great NPS score in acquisition, but overall a bad NPS due to poor customer service.”
Businesses need more detail than NPS provides in order to better understand behaviour
2. An inability to predict the future
When you ask a customer whether they’d recommend your business you’re capturing a moment in time, a snapshot if you will. “You could ask someone after they’ve had a particularly bad experience with one touchpoint and they’ll mark you down,” Martin says. “And what that means is that it’s not that good at predicting the future: it’s like driving a car and looking into the back mirror. Nothing that you see will help you predict what’s coming around the next bend.”
3. Does it really measure loyalty?
The other grey area is over whether NPS actually measures true loyalty. “Reichheld argues that true loyalty doesn’t require repeat purchase – as long as someone refers the company then he or she is a loyal customer. But can recommendation alone comprise the entirety of the loyalty picture? What about if that person isn’t continuing to purchase from the company at all? It seems that NPS captures just one side of the coin.”
4. It can (sometimes) be misused
With some CMOs’ remuneration based on NPS achieved, it’s not completely unheard of for the NPS question to be asked at the right time with the right incentive to increase the chances of a positive answer. “In this way, you might get some slightly biased answers,” says Martin.
5. It doesn’t hold anyone accountable
“NPS gives you a company score,” says Martin. “But the question is: who’s accountable to fix it? You might have a low score but no real understanding of where the problem lies (ie why you’ve been scored so lowly) and thus who’s responsible for fixing the problem. Is it sales, marketing or customer service, for example?”
It seems that in many respects there are good – or even better – alternatives to NPS
So what are the alternatives?
Since NPS’ inception in 2003, a number of loyalty metrics have been introduced – including the American Customer Satisfaction Index and Behavioural Word-of-Mouth (WOM). “The former appears to perform better when replicating the analysis used in NPS research, while the the latter behaves similarly to NPS as it also has the benefits of using real, behavioural data,” explains Dr Tzempelikos. “It seems that in many respects there are good – or even better – alternatives to NPS.”
And then you have the measurement systems proposed by brands themselves. Misys’ trademarked customer health index (CHI), for example, is a predictive tool that measures the customer’s relationship with the brand in a holistic way: it looks at the complete customer lifecycle from awareness to renewal (every touchpoint from marketing to legal and customer service) and asks the customer to score each one. “Every one of the 10 categories has a KPI, which is customer-relevant,” explains Martin. “So a question at the helpdesk/customer service stage might be: Have you solved my problem in a timely manner?”
Misys, which is using CHI rather than NPS, uses weighted averages to deliver a final score out of 100: 100 for world-class companies, zero for those that are failing in every area. “It’s thus more granular and more analytical than NPS,” says Martin, “and allows you to see exactly which function in the company is accountable for what – in that sense, it also drives predictions. We also look at both internal and external perceptions: internally we get 1000 respondents from CEO to network managers to give us their thoughts, which hopefully gives us a good mapping.”
The idea of using other metrics – such as customer churn, sentiment analysis and customer lifetime value – to complement rather than replace NPS is a popular one, with many brands realising that relying solely on NPS as a measure of loyalty and satisfaction won’t necessarily work. “There’s no silver bullet,” says Vanessa. “Companies need to meet their customers where they are, which means at any and every touchpoint possible, including any future potential touchpoints. This is why the combination of experience design and journey analytics have become a popular way to solve this challenge. Businesses need more detail than NPS provides in order to better understand behaviour.”
NPS: To be or not to be?
So does the fact that NPS has its critics signal its imminent demise? Not necessarily. As a metric it’s been widely adopted by businesses around the world – and for good reason – but as a tool used independently it will have its limitations.
“It’s true to say that if additional indicators capturing customer experiences, attitudes and behaviours are considered we’d have a more holistic assessment of customer loyalty and a more accurate prediction of a company’s growth,” says Dr Tzempelikos. “Such an approach will also suggest a useful roadmap for taking organisational action on areas that need improvement.”
While the claim that NPS ‘is the single most reliable indicator of a company’s ability to grow’ probably overstates the case – and NPS alone can’t be considered alone a sufficient measure for growth – it’s definitely a useful tool, and one that’s definitely best used when implemented alongside other measures.
