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Friday, August 19, 2022

A Metric That Matters - Why Corporate Marketers Embrace the Net Promoter Score (NPS) * [44]


 Frederick Reichheld’s seminal article “The One Number You Need to Grow” noted that companies waste much time and resources attempting to measure customer satisfaction via complex surveys which suffer from poor response rates and ambiguous meaning. Building on pioneering work at Enterprise Rent-a-Car, the author found that a single “would recommend” question is a useful predictor of growth, focuses employees on the right corporate priorities, and captures true loyalty rates which clearly affects profitability (Reichheld, 2003).

Doing business today requires accountability for marketing performance tied to financial outcomes. Top executives, board members, and shareholders demand accountability for new and established marketing programs. Superior customer value means knowing customers’ behaviors and buying patterns. Metrics are an important part of the strategic marketing process to understand how successful the organization is now and what it needs to accomplish to become even more successful in the years ahead. Companies employ loyalty and retention initiatives which directly impacts business performance and maximizes long-term value for customers.

A major issue for debate in an organization is what metrics to collect and evaluate. The choices are wide-ranging -- from a single metric such as the Net Promoter Score (NPS) or North Star Metric (NSM) to literally hundreds of potential marketing and performance variables. For example, one leading book on the subject claims that there are 50 marketing metrics that matter related to the marketing mix, profit margins, customer profitability, share of market, the web, and other key areas in business (Faris et al., 2006). Clearly, a focused approach is best. Marketers should choose a limited number of strong industry-specific measures that make the most sense for an organization within the context of a relevant customer value metrics framework.

Measuring Customer Loyalty via the Net Promoter Score

There are many ways to evaluate customer loyalty such as customer satisfaction scores and indexes, repurchase intentions, recommendation intentions, etc. The NPS measure has capture the attention of marketing managers. 

A single-item, 11 point-satisfaction scale -- the Net Promoter Score (NPS) – is used by Enterprise Rent-a-Car, JetBlue, Intuit (manufacturer of Turbo Tax software) and thousands of other companies. It is an easy-to-use and insightful metric to monitor business performance over time. Due to its simplicity and explanatory power, the Net Promoter Score (NPS) has been widely praised by marketing practitioners as the best metric for assessing customer loyalty and a company’s ability to grow.

A Net Promoter Score (NPS) is calculated as follows (Satmetrix, 2011).

 1. Following the service experience, ask each customer one simple question:

2.      Based on your last experience with Company X, how likely would you be to recommend Company X to a friend or colleague? (Customers respond on a 0-10 point rating scale where 0 is not at all likely and 10 is extremely likely).

       2.  Respondents may be promoters (9-10), passives (7-8) or detractors (0-6). 

T    3. The % of customers who are detractors is subtracted from the % of who are promoters (passives are not considered in the analysis) to compute your NPS.

      Example: 78% of JetBlue customers are promoters, 12% are passives and 10% are detractors. Jet Blue’s NPS is 68. This is then compared to the competitive set. For example, Southwest Airline’s NPS is 62, Delta Airlines and the industry average is 38, and United Airlines is 10.

Mike Gowen, Co-founder of Delighted, says that NPS scores should be assessed absolutely and relatively. He suggests five ranges of customer experience: a negative number is poor performance, <30 = lots of opportunities for improvement, 31-50 = quality experiences are delivered, 51-70 = excellent customer experiences and 71+ is world class customer experiences. From a relative perspective, the software industry has an average NPS score of 41; a low score is 28 and TurboTax has a high score of 55 (Gowen, 2017).   

Enhancing Your NPS Program

While the potential real-world advantages -- long-term value creation, customer loyalty, and corporate growth -- of a well-executed NPS initiative are clear, researchers are concerned that this single-item metric is subject to measurement bias, lacks validity, and may be inferior to other customer satisfaction and loyalty measures.

Here are three ways you can improve and adapt the NPS approach. First, the psychometric properties of the scale can be reevaluated. While an 11-point (0-10) point scale is intellectually appealing, consider using a 3-point (detractors, passives, or promoters) scale or the standard 5 or 7-point Likert scales. NPS research has been found to fare well on test-retest reliability -- a recent study reported an r =.75 which exceeded satisfaction with the brand r=. 70 and attitude toward the brand, r=.69 (Sauro, 2018). Further work is needed for other forms of reliability and validity.

Second, the idea of the customer may be extended to other stakeholders such as employees, suppliers, affiliates, and so forth. In response to management’s reliance on NPS, United Airlines flight attendants pushed back by introducing a weekly FPS (Flight Attendant Promoter Score) to evaluate management practices. The early returns were not good as flight attendants gave airline management a minus 95 week one (Murphy, Jr., 2022).

Third, employees in many industries are reported to be stressed from increased pressure to achieve excellent numbers. A more balanced view which would include NPS as part of a battery of key metrics is recommended. For further reading on customer value metrics, see blog posts 13, 18, 25, 36 & 38.

References  

Farris, P.W, et al. (2006). Marketing Metrics: 50+ Metrics Every Executive Should Master, Upper Saddle River, NJ: Wharton School Publishing.

Gowen, M. (2017). What is a good Net Promoter Score to have? Response (May 19), www.quora.com/What-is-a-good-net-promoter-score-to-have/

Murphy, Jr. (2022). United Airlines flight attendants just made a big announcement and basically nobody is happy, Inc., August 6.

Reichheld (2003). The one number you need to grow, Harvard Business Review, December.

Satmetrix (2011). Calculate your Net Promoter Score, www.satmetrix.com/net-promoter/

Sauro, J. (2018). Measuring the reliability of the Net Promoter Score, Measuring the Reliability of the Net Promoter Score – MeasuringU


Art Weinstein, Ph.D., is the blogmaster and a Professor of Marketing at Nova Southeastern University. He may be contacted at art@nova.edu

 

 

 

 


18 comments:

  1. I actually thought this was a good article, i run a business myself and never thought to use this method to focus on promoting and using as a measure to see how what my clients actually think of my service.

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  2. As an early entrepreneur myself, this article was very beneficial. I definitely see why bigger companies such as Jet blue would use an 11 point feedback system. But, I believe you have a very valid point about the benefits of smaller point scales. It makes the feedback much more direct and gives the business owner a clear view on peoples opinions and feedback. After reading this article, I will definitely begin to experiment with smaller point systems. I enjoy the fact that it is either a negative or positive response, there is not much room for the middle opinions, which truly do not help much.

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  3. I like the perspective you gave and the example companies. While I like the simplicity of the NPS model how does it compare with other models?

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  4. What is the NPS and why is it widely used by companies to measure customer loyalty? What are some potential issues with using the NPS and how can they be addressed?

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  5. While I had never previously gave thought to the importance or purpose of customer satisfaction surveys, I believe this specific question does reflect a more accurate representation of satisfaction. The NPS method is interesting, looks like it correlates much better with a company's sales than other traditional survey questions.

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  6. I think this article brings up an interesting point regarding the value of customer satisfaction surveys. What is commonly thought of as a nuisance and waster of time may actually prove to be a key component in a company's plan for growth. The NPS scale is logical; I believe it is a great way to measure the performance of a company as well as the loyalty of its customers.

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  7. The article I chose to respond to is why corporate marketers embrace (NPS)I found it interesting because if the job I work. I work a retail job one of the metrics that heavily looked at is the loyalty score. After reading this article I gained some helpful insight on why this score is important. 

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  8. I am familiar with the NPS “Net Promoter Score” as I have seen this used on many websites in the past. I have always wondered if the NPS would be useful for a company and this article really explained the NPS concept and how it is implemented. I still question if one data point can really drive marketing decisions.

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  9. It's fascinating how much info a simple survey question you can assess, the NPS scale does sound like a very solid ways companies or services can use to analyze their performance, and combined with other tools it seems like it would be a powerful and simple addition to the analytics.

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  10. The NPS scale is a powerful tool for measuring customer loyalty and growth potential. The stress related to obtaining high numbers can be lessened with a balanced approach that includes NPS as part of a larger set of essential measures, ensuring a more comprehensive picture of business performance.

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  11. The stress related to obtaining high numbers can be lessened with a balanced approach that includes NPS as part of a larger set of essential measures, ensuring a more comprehensive picture of business performance.

    ReplyDelete
  12. The blog post demonstrated the simplicity of the NPS (Net Promoter Score) and how it can be used by marketers to track customer loyalty. There were good points on watching out for over reliance on NPS alone and it is important to have a more balanced view. It would be interesting to expand more on how AI and other types of data analytics can be used in combination with the NPS score.

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  13. This article by Kanika Meshram is a great reminder of the importance of customer centricity, especially in the wake of the pandemic. The examples of Airbnb, Amazon, and StageKings show how companies can create value for their customers by listening to them from the head, heart, and feet. I believe that customer centricity is essential for any business that wants to succeed in the long term. By listening to their customers and understanding their needs, companies can create products and services that customers love.

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  14. As someone currently working in the Marketing field, I can agree with the value the author puts on the Net Promoter Score. It is definitely one our top metrics used to help determine customer satisfaction as well as offer insights on areas we need improvement. Lastly, as a consumer myself, I often part-take in the surveys and enjoy giving feedback, especially if the service or product exceeded my expectations, as well as falls short.

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  15. This article shows a different way to better for customers to give their feedback for example JetBlue used the 11 point scale and in the example given in the article the prompt was "Based on your last experience with Company X, how likely would you be to recommend Company X to a friend or colleague? (Customers respond on a 0-10 point rating scale where 0 is not at all likely and 10 is extremely likely)." This 0-10 allows customers a wider variety viewpoints and With more points on the scale, it becomes easier to detect subtle differences in respondents opinions.

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  16. The discussion on measuring customer loyalty through the Net Promoter Score (NPS) is insightful and practical. While the simplicity of NPS makes it appealing, the article rightly highlights potential limitations such as measurement bias and validity concerns. I particularly appreciate the suggestion to reevaluate the psychometric properties of the scale and to consider extending the idea of the customer to other stakeholders. Incorporating NPS as part of a comprehensive set of metrics seems like a balanced approach to ensuring a holistic understanding of customer value. Thank you for shedding light on this important aspect of marketing performance evaluation.

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  17. This blog entry really caught my eye because, admittedly, I've taken a lot of NPS types of surveys in the past with Chick-Fil-A -- simply because there's incentive with a free sandwich after taking the survey. What this blog entry reinforces, however, is that Net Promoter Scores are very effective at getting feedback with or without incentives. I never considered the possible issues with NPS, though, with measurement bias and such, but it makes a lot of sense!

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  18. I really enjoyed this article because it talks about a certain survrey that everyone has done at least one time in their life. You are able to relate to the survey, and truly figure out what this survey does.

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