The Net Promoter Debate

There is a healthy conversation happening about Net Promoter, it's link to growth, and it's success in driving customer centric organization.


The debate has been stirred up recently by a paper published in the Journal of Marketing where they authors attempt to discredit the research done by Satmetrix and Fred Reichheld on the connection between Net Promoter and growth.

After reading the Journal of Marketing paper, I have the following observations.

1. In Table 1, they show a correlation between revenue and commonly used satisfaction/loyalty metrics in various industries. The Net Promoter research was done at the organizational level demonstrating the correlation of an organization's Net Promoter Score and their growth rate. The research in the Journal of Marketing is different in it's approach and has little in common with the original research. Organizations use Net Promoter to measure their own customer loyalty and to benchmark their performance relative to their competitors.

2. In Figure 1 the Journal of Marketing research shows that Net Promoter is, at a minimum, equivalent to ACSI in correlating to growth. That says that a simple metric driven by a single question is at least as accurate at predicting growth than a more complex algorithm driven by multiple questions.

3. This conversation is missing the point that is attracting business leaders. The value of Net Promoter is its simplicity. Unlike complex satisfaction indexes, Net Promoter is easy to understand and take action on. Simplified surveys drive higher response rates, a better reflection of the customers that matter, rather than random sampling. Using real-time reporting, leaders can get information in the hands of employees that can address detractors, move the passives and nurture the promoters.

At the end of the day, it’s what companies do to improve loyalty that drives growth. Net Promoter offers an approach that is understandable by everyone in the business, not just the statisticians. This gives an organization a rallying cry for building customer-centric organizations. The paper lists a number of business leaders that are doing exactly that including companies such as GE, T-Mobile, Intuit, Progressive, Overstock.com, and American Express.

Net Promoter is a disruptive approach to traditional research. It does not attempt to replace all forms of market research, but creates a formula for understanding customer loyalty and focusing an organization on delighting customers and building Promoters that will protect and grow revenues. Net Promoter is not just a score, and not just a survey design; but an overall approach for how organizations collect, distribute and use the information to improve customer relationships. Leaders adopting Net Promoter want to do more than watch the score, they want to improve it. Read the many success stories of companies adopting Net Promoter and decide for yourself whether this approach will help you drive customer centricity in your organization.

Here are some of my favorite responses to the debate:


NPS What is it REALLY good for..., where the author says:

This all aside, however, I think the true value of the Net Promoter Score as a tool within companies lies simply in the focus on the customer it generates.
Where many marketers are now buried under reams of data, KPI’s, customer satisfaction studies, brandvalue analysis, etc ad infinitum, this is replaced by one single and easy to handle and understand metric. It focuses the organization on concrete results, on “how will we delight” instead of generic customer satisfaction indexes. It creates a dollars-and-cents conversation due to the measurable value of an individual promoter to the company. And again it focuses the organization on precisely that point – to get more profitable customers (insert dollar value here) I need to improve specifically X, Y and Z. “Here you go, dear finance director – my new marketing initiative will generate this ROI for the company, because of 500 detractors being turned into promoters, generating 1000 X, 500 Y and 750 Z. “

Net Promoter and Customer Loyalty

But does this matter? The answer is probably not. While Keiningham’s statistical analysis might be correct - and it’s important that we should take no proprietary management tool as gospel - it perhaps misses the point. Brands everywhere need a simple method to point them in the right direction; if anything encourages them to cut down on long, pointless customer surveys and look more closely at what people really want, surely that is a good thing?

Posted Love this comment on July 19, 2007 17:55
Alain Thys:

Stefan

to continue our phone conversation online :-) I thin k you hit closest to home with the "focus comment". As a CEO or Senior executive you're confronted with a gazillion KPI's which gives everyone in the organisations a large amount of excuses to everything under the sun, except "delight" the customer. focusing everyone on "one metric" may not be academically correct (but who cares), it does get the point across and eliminated internal excuses. It also is extremely helpful in getting various "silos" in the organisation to pay attention to the same thing.