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.
Technorati Tags: Marketing, Customer Advocacy, NPS, Net Promoter Score, Journal Of Marketing, Forrester Research, Larry Freed
Your second issue is not out of line with what Fred Reichheld writes in “The Ultimate Question.” You write that “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.”
Reichheld references the importance of the “Golden Rule” a number of times in his book. From the Net Promoter website, he writes the following: “The Golden Rule of treating others as you want to be treated yourself has a significant place in business,” says Reichheld. “Successful organizations take this rule seriously because it is the basis of loyal relationships. It’s an integral part of how they operate: they want customers who are so pleased with how they are being treated that they not only come back for more, they bring their friends.”
Within the book, he goes on to say that “The foundation for good business is the ability to organize relationships into voluntary associations that are mutually beneficial and accountable for contributing productively to the surrounding community.”
Amy — Thanks for commenting. My issue isn’t with Fred Reichheld. It’s with the firms that are spending high six-figures (and sometimes seven) to invest in a measurement infrastructure based, not even on referral behavior, but referral intention.
That being said, if Mr. Reichheld and the Net Promoter promoters were so concerned with “the golden rule” than they should be advising firms to measure what Forrester is measuring (which happens to have more solid research behind how consumers define advocacy, and — more importantly — the operational implications of those definitions/views.
And that’s the downfall of NPS. There’s no research or theory behind it tying it to operations. Which makes it a not very useful management tool. Good metrics are good management tools. NPS isn’t.
Ron — Thank you for writing about our Journal of Marketing paper. I would just like to contribute a few comments.
First, our research did not find Net Promoter to be a good predictor of growth at all.
Second, our comparison to the ACSI was done because Reichheld specifically states that Net Promoter is superior to the ACSI in his Harvard Business Review (HBR) paper, his book, and his presentations. He actually reports that their research found the ACSI to have a 0.00 correlation to growth. We were able to replicate a subset of Reichheld’s data (for his best case scenarios). Our findings clearly show that when using Reichheld’s own data, Net Promoter wasn’t superior to the ACSI.
It is difficult to imagine a scenario other than research bias as the cause of this finding. This is a serious problem. We expect published research to be free of bias in management science, just as we do in all other fields of study. Managers have adopted Net Promoter based upon the belief that solid science underpinned the claims attributed to the metric. In fact, there would have been no HBR paper introducing Net Promoter without the research. Our research clearly calls these claims into doubt.
— Tim Keiningham
As always – another thought provoking entry. I read with great interest “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.”
Let me lend some light as to why the satisfaction (when measured correctly/ACSI) drives growth. There are many academic papers on the subject, specific to the ACSI, with most papers addressing the topic of the evidence that it does drive growth. No small issue, and one not done with any accuracy around net promoter. You can find some of those papers here: http://www.customermetrics411.com/articles-white-papers.php
But let’s simplify things a bit (or at least try). When consumers make purchase decisions it is a result of weighing the gratification against the pain (the cost). When we are satisfied (gratification outweighs the pain) we will purchase again (and sometimes recommend to others). Consumers that become repeat purchasers drive growth and do it more economically efficient then having to replace those customers with new ones. In very simple terms, that is why satisfaction drives growth.
Larry — As always, thanks for commenting.
The first issue I have with both the NPS and satisfaction metrics is that they’re both so highly dependent on particular snapshots at time.
Ask a customer after a surprisingly pleasant experience if he’s satisfied (or if he’s willing to refer the company to friends/family) and he may say yes. But what happens if he has five bad experiences in a row, but thanks to sampling techniques isn’t surveyed? Is he still a “satisfied” customer? Maybe not.
Second — and more importantly — is the connection (or lack thereof) between being satisfied and having a desire the expand the relationship with a firm. A customer might be satisfied with the ONE product he owns, or service he uses. But that gratification has no impact on the gratification/cost tradeoff of purchasing additional products or utilizing additional services.
Third — the term satisfaction is not a very precisely defined term. Even worse, using a five-point or ten-point scale to measure it is likely to introduce inconsistencies into comparisons since my 7 rating may actually be “more satisfied” than your 8 rating. (Not that we can actually measure that, and DON’T get me started on the NPS supporters insistence on only counting the 9s and 10s).
So, in the end, no quantity of white papers that CORRELATE satisfaction ratings to business results will convince me of the CAUSATION. The other thing to keep in mind is that while measuring the customer side of the coin is hard enough, there are so many factors impacting a firm’s growth results, that proving this causation would require a pretty substantial econometric model.
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There has been a lot written about how NPS (Net Promoter Score) is not really the “single metric” that companies need to grow customer loyalty. The sense of that companies have adopted NPS and eliminated a combination of other metrics that seem to be more predictive of retention, in effect “throwing the baby out with the bathwater.” Note that the articles are usually written by research companies that specialize in those other metrics…..