Thursday, July 15, 2010

NPS One More Time

It is with great hope that this is the last blog regarding Net Promoter Score (NPS) written by the Customer Institute. This blog has two components. The first is a short discussion of one of the problems noted by the Customer Institute and the second is a brief discussion abstracted from an article by Craig F. Kolb, a marketing research specialist with Ask Afrika, a marketing research firm in South Africa.

A concern of the Customer Institute

One of the key concerns of the Customer Institute is to understand measures of customer satisfaction and loyalty. NPS is promoted as "the fundamental perspective that every company's customer's can be divided into three categories: Promoters, Passives and Detractors. On a scale of 0 through 10 the categories are defined as Promoters score 9 or 10, Passives score 7 or 8 and Detractors score 0 through 6. By asking one simple question - How likely is it that you would recommend [Company X] to a friend or colleague? - you can track these groups and get a clear measure of your company's performance through it customer's eyes."

The calculation of NPS takes the percentage of customers who are Promoters and subtracts the percentage who are Detractors.

Here is the problem. Consider three companies A, B, C. Each has a NPS of 70%. Consider each company's score is computed as follows:
Company A has 80% Promoters and 10% Detractors for an NPS score of 70%
Company B has 75% Promoters and 5% Detractors for an NPS score of 70%
Company C has 70% Promoters and 0% Detractors for an NPS score of 70%.

Of course many combinations are available that will yield an NPS score of 70%. The business problem (perspective) is that these three companies (A, B, C) are in very different conditions and yet the executives of each company believes their company is equal in customer perception with the other two.

Concerns by Craig F. Kolb

Mr. Kolb makes a number of statements and backs them up with references that will not be repeated in this blog. The statements are listed and those interested in checking the validity can refer to his article "Re-Evaluating the Net Promoter Score" dated July 14, 2010. The concerns are:
1. The Ultimate Question is far from being ultimate and is not the best predictor of customer retention.
2. The NPS does not relate to the percentage of customers switching away from each institution. A survey of 8000 customers were asked the likelihood of recommending question along with a rival set of question is and then followed up a year later. The ultimate question was outperformed by a simple repeat purchase intention question.
3. With NPS "promoters" are not equally loyal.
4. The relationship with growth is not clear with NPS. A study by Morgan & Rego in 2006 found that NPS was not predictive of company growth rates and customer satisfaction outperformed NPS as a predictor.

The bottom line is that NPS needs to be viewed very carefully. There are a lot of questions that must be answered before companies can use the NPS score without reservation.

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