What is a Net Promoter Score (NPS)?

In the world of data, Net Promoter Score or NPS has risen to be one of the most used metric to measure customer experiences. To jump right in to it, the Net Promoter Score is a particular statistic that some researchers propose can predict whether overall customer loyalty will encourage your business to grow or not. The main idea of NPS is alluringly simple. Take the percentage of customers who are highly likely to recommend you (promoters), subtract those who are disinclined, indifferent, or only somewhat likely to give you good word of mouth (detractors). There you have it: %P – %D = NPS. The prediction is that a higher score allows for better top-line growth.

This makes a lot of common sense and the underlying theory may be strong too. The research behind NPS was first presented by Fred Reichheld in a 2003 ‘Harvard Business Review’ article. He later expanded on the concept in his book ‘The Ultimate Question: Driving Good Profits and True Growth’. On the other hand, some market researchers claim that the correlation between growth and NPS does not hold up over the long run. Also certain markets, like business-to-business service buyers or senior technology executives, seem to respond more accurately when adjustments are made to the basic approach.

The premise of NPS is simplicity itself. Responses to the likelihood to recommend question are solicited on a 0-10 scale, with 0 meaning the least likely to recommend and 10 meaning the most likely to recommend. Responses are then grouped in the following manner:

  • Customers with responses of 9-10 are categorized as Promoters.
  • Customers with responses of 7-8 are categorized as Neutral or Passive.
  • Customers with responses of 0-6 are categorized as Detractors.

The foundation of NPS is the claim that it is the only metric a company needs to predict growth. We are struck by the carefully chosen language employed there, noting that the emphasis is on “predict”, as opposed to “drive” or “cause”. While there is a strong temptation to join the raging debate, and doubt, over whether NPS is causal in its effects on revenue change, or merely correlated, we believe there are other issues that warrant scrutiny. Let’s take a look at them one at a time.

Mr. Reichheld would have us believe that if you concentrate on building a high score to a single metric, everything else will follow. While that makes for attractive theory, the reality is, it just doesn’t work that way. Tracking change in an organization is one thing. Driving change is another matter entirely. To bridge the gap between collecting information and actually putting it into play, a customer survey needs to entail several key components.

1) It needs to explore all of the dynamics and touch points that comprise and contribute to the customer relationship. No single question, posed in a vacuum, will produce an accurate set of responses. Customer loyalty and recommendation behaviour are products of satisfaction with the total customer relationship. They are not, and cannot be effectively dealt with, as a free-standing outcome.

2) Information produced by a survey must be actionable, as opposed to merely interesting. Survey data and summary metrics need to be clear, non-subjective and unambiguous. Scales and data collection methods that tend to influence replies or generate predictable outcomes must be avoided. Metrics need to be based on fact, not supposition and theory. Arbitrarily calculated combinations or groupings of responses – such as assuming that all detractors are created equal – merely produces informational clutter while obscuring the true opinions of individual customer respondents.

3) It needs to utilize metrics that are quantifiable. Among our objections to NPS is the total lack of support data attached to its claims. Rather than, improve this metric and growth rates will increase, focus on tools like the Revenue Index, which provides a reliable measure for predicting and tracking the impact of specific actions and outcomes on revenue contribution.

4) It needs to ultimately provide a clear sense of direction. They key to any survey is not in learning simply what customers think. You need to learn why they think it, and how to most efficiently and effectively change their opinions for the better.

NPS has been heralded by its creator as the proverbial magic pill. It is our belief that no such pill exists. Developing satisfied customers takes dedication, commitment and work, plain and simple. Tracking an arbitrarily derived number is not going to get the job done, it is only a piece of the puzzle that needs to me solved and managed.

If you are looking for a customer feedback management or survey tool, we are more than happy to help you to find the right one for you. Just let me know!

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Jaakko Männistö

– CEO

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