Viewpoint -- Customer Feedback Professionals Question Customer Relationship Management Method http://www.netpromoter.com/why-net-promoter/know/

Viewpoint -- Customer Feedback Professionals Question Customer Relationship Management Method

A closer look at the metric.

The Net Promoter Score (NPS) is used by many of today's top businesses to monitor and manage customer relationships. Fred Reichheld and his co-developers of the NPS say that a single survey question, "How likely are you to recommend Company Name to a friend or colleague?", on which the NPS is based, is the only loyalty metric companies need to grow their company. Despite its widespread adoption by such companies as General Electric, Intuit, T-Mobile, Charles Schwab, and Enterprise, the NPS is now at the center of a debate regarding its merits.

Fred Reichheld, the co-developer of the NPS (along with Satmetrix and Bain & Company) has made very strong claims about the advantage of the NPS over other loyalty metrics. Specifically, they have said:

  1. The NPS is "the best predictor of growth," (Reichheld, 2003)
  2. The NPS is "the single most reliable indicator of a company's ability to grow" (Netpromoter.com, 2007)
  3. "Satisfaction lacks a consistently demonstrable connection to... growth" (Reichheld, 2003)

There is considerable scientific evidence disputing the findings of the NPS camp (Hayes, 2008; Keiningham et al., 2007; Morgan et al., 2006). The basic finding is that the NPS is not the best predictor of business performance measures. Other conventional loyalty questions (e.g., overall satisfaction, continue to purchase) are equally good at predicting revenue growth. Reichheld's claims are grossly overstated with regard to the merits of the Net Promoter Score. Despite the scientific research criticizing the NPS claims, the NPS developers still presses the claim that the NPS is the best predictor of company growth.

The Net Promoter developers have not refuted the current scientific research that brings their methodological rigor into question. Instead, they only point to the simplicity of this single metric which allows companies to become more customer-centric. That, however, is not a scientific rebuttal. That is marketing.

Current Study

I was interested in understanding the opinion of other customer feedback professionals regarding the NPS debate. I recently conducted a survey in which 277 customer feedback professionals (e.g., Senior Executives, Directors, Managers and Individual Contributors of Customer Feedback Programs (CFPs)) of enterprise, medium and small businesses were asked about their company's customer feedback program. As part of this larger study, respondents were asked to give their opinion on the NPS methodology. Specifically, respondents were asked to indicate the degree to which they agree or disagree with the following two statements:

  1. The Net Promoter Score (e.g., recommend intentions) is a better predictor of growth compared to other loyalty questions (e.g., satisfaction, repurchase intentions).
  2. The Net Promoter Score (e.g., recommend intentions) is a better predictor of growth compared to other loyalty indices (aggregate of recommend, satisfaction, repurchase intentions).

Additionally, respondents were asked to indicate their company's industry percentile ranking with respect to customer loyalty. Loyalty Leaders were defined as companies whose industry percentile ranking of customer loyalty scores was 70% or higher. Loyalty Laggers were defined as companies whose industry percentile ranking of customer loyalty was below 70%.

Results

Over 80 Customer Feedback Professionals answered the two NPS questions (see Table 1). When asked to compare the NPS with other loyalty questions/items, only 26% of the customer feedback professionals agreed that the NPS is a better predictor of growth compared to other loyalty questions. When asked to compare the NPS with other loyalty indices, again, only 26% of the customer feedback professionals agreed that the NPS is a better predictor of growth compared to other loyalty indices.

When we examined the difference between the Loyalty Leaders and Loyalty Laggers, the results are much different. More Loyalty Laggers (42%) believe the NPS is better than other loyalty indices compared to Loyalty Leaders (14%).

Table 1. Percent of respondents who agreed that NPS was better than other loyalty items or indices.
 

  Overall Sample Loyalty Laggers
(Industry loyalty percentile ranking < 70%)
Loyalty Leaders
(Industry loyalty percentile ranking =>70%)
NPS better than other items 26% 28% 23%
NPS better than other indices 26% 42% 14%


Summary

The results clearly show that the NPS claims are not widely supported by customer feedback professionals. This finding is more remarkable for customer feedback professionals from companies who are Loyalty Leaders.

Yes, the NPS is a simple metric, but the issue regarding its merits is much deeper. The simplicity of the NPS does not make it the right solution; the simplicity of the NPS does not minimize the problems (e.g., research bias) of the NPS research as well as their misleading claims regarding the superiority of the NPS over other loyalty metrics. The current study showed that customer feedback professionals seem to be aware of the limits of the NPS claims. Customer Feedback Professionals need to share their concerns (along with the recent research on the NPS) with their CEOs and CMOs.

Bob E. Hayes, Ph.D. is the president and founder of Business Over Broadway (B.O.B.), providing consultation and direction to help companies maximize the value of their survey programs. He has conducted survey research for companies including Siebel Systems, Oracle, Agilent Technologies, CIGNA, and Cisco Systems. http://www.businessoverbroadway.com/


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