Saturday, March 22, 2008

Some Further Thoughts on NPS

I have some further thoughts about the NPS measure and its use. I think my main problem is that I don't understand how it is used and what makes it a superior metric for customer loyalty. Let me focus on one area that gives me some "heart burn."

I hope I am correct when I define NPS as the percent of scores that lie between those who score 9 or 10 and those who score 1 through 6 on a survey that asks the "ultimate question" - using a 10 point scale. An NPS score of 10% for company A could be obtained if there were 80% of the responses to the "ultimate question" at either 9 or 10 and 10% of the responses having a score of 1 though 6. The 80% number represents the advocates and the 10% who score on the low end, the detractors. (If these names - advocates and detractors - are not quite right- forgive me - it is Saturday morning).

But consider the case (company B) that shows the percent of advocates is 85% and the percent of detractors is 5%. This also gives an NPS score of 10%. According to the NPS score both companies have equal loyalty. This can't be true. I must be missing something.

What if I find company C who has only 60% advocates and 30% detractors. This company according to my understanding of NPS would have the same loyalty score as companies A and B.


It appears to me that the location of the difference (the NPS score) is critical to the valuation of customer loyalty.

I read a note by Dr. Paul Marsden, director of and he states "the value of the Net Promoter is that its simplicity drives adoption across the business to develop a customer-centric culture." I believe it is just as simple to look at the percentage of customers who score 9 or 10 on any overall measure versus those who score low on the same measure. I have found that most overall measures correlate very highly with one another so that selection of one over another as being "better" may be nothing more than wishful thinking (or good marketing).

On the very positive side of NPS, it has provided a simplistic measure that can be easily displayed and described to all levels of management. From the position of viewing customer loyalty as a single, simple measure, a company that selects NPS may be more inclined to develop company-wide customer-centric behavior throughout its corporation. That is VERY positive.

The bottom line: A customer loyalty measure that can be used to encourage a company to be more customer focused should discover the customer focus invariably improves the company's performance. This has been proven in many studies.

The caveat we must always remember is that the NPS measure is statistical and therefore is subject to all the errors in data collection and analysis associated with the measurement. One final caveat is that statistical measures are just that; namely, statistical measures. This means that just because there is a statistical relationship, there may not necessarily be a cause-and-effect relationship.

And finally, the use of a single measure of customer loyalty is only the open door to developing a detailed understanding of the impact of the three components of loyalty: namely, product, process and relationship. The "devil is in the details."

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