The Journal of Marketing recently published a study titled “A Longitudinal Examination of Net Promoter and Firm Revenue Growth” that is gaining currency among us NPS bashers. The authors conclude that:
We find no support for the claim that Net Promoter is the single most reliable indicator of a company’s ability to grow. We found that when making ‘apples-to-apples’ comparisons, Net Promoter does not perform better than the ACSI (American Customer Satisfaction Index). Managers have adopted the Net Promoter metric on the basis that is superior to other metrics. Our research suggests that such presumptions are erroneous.”
This study has important implications for firms considering whether or not to adopt the NPS metric as worthy of measurement. For me, though, the issue isn’t whether or not NPS is a better metric than customer satisfaction.
The first issue is about money. Measurement costs money.
Over the years, many companies have built an infrastructure around measuring customer satisfaction. Yet, on the urgings of ONE book, a growing number of firms have gone out and spent millions more to measure a new metric. Where’s the ROI on that investment? Was this the best place to spend a firm’s limited funds? I don’t think so, but go ahead — try to convince me that it was.
My second issue is with how the NPS groupies define customer advocacy — as the customer “advocating” for the company through a willingness to provide referrales to family and friends. Few people seem willing to see customer advocacy through another lens: The perception on the part of the customer that a firm does what’s best for the customer, and not just its own bottom line.
This is how Forrester Research defines it, which just published its annual Customer Advocacy ranking of financial firms. Overshadowed by the rankings is a key finding: Across the banking, brokerage, and insurance arenas, consumers that rate their financial providers as doing what’s best for the customer are far more likely to consider buying from those firms in the future.
The third issue I have with all this is the lack of theories about causality. Neither the NPS groupies nor the ACSI supporters make a case for why their favorite metric drives growth.
Which is why I like Forrester’s definition of advocacy. It implies that if you do what’s right for your customer — or at least create that impression — then it will result in satisfied customers who refer the firm to friends and family. And create customers who want to do more business in the future.
Maybe someday more executives will come around to this way of thinking. In the meantime, I guess we’ll just have to live the NPS groupies’ great customer advocacy hoax.
See Larry Freed’s blog for more discussion on this study.