Net Promoter is a management tool that can be used to gauge the loyalty of a firm's customer relationships. It serves as an alternative to traditional customer satisfaction research.^{[ citation needed]}

Overview

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Net Promoter is a customer loyalty metric developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix. It was introduced by Reichheld in his 2003 Harvard Business Review article "The One Number You Need to Grow" ^[1]. The most important proposed benefits of this method derive from simplifying and communicating the objective of creating more "Promoters" and fewer "Detractors" -- a concept claimed to be far simpler for employees to understand and act on than more complicated, obscure or hard-to-understand satisfaction metrics or indices. In addition, proponents claim the Net Promoter method can reduce the complexity of implementation and analysis frequently associated with measures of customer satisfaction, providing a stable measure of business performance that can be compared across business units and even across industries, and increasing interpretability of changes in customer satisfaction trends over time.

Companies obtain their Net Promoter Score by asking customers a single question on a 0 to 10 rating scale: "How likely is it that you would recommend our company to a friend or colleague?" Based on their responses, customers can be categorized into one of three groups: Promoters (9-10 rating), Passives (7-8 rating), and Detractors (0-6 rating). The percentage of Detractors is then subtracted from the percentage of Promoters to obtain a Net Promoter score. A score of 75% or above is considered quite high. At some companies like Apple Inc (AAPL), scores from detractors of promoters generate alert emails either alerting management to the promoter or alerting them to the detractor who they are to call back within 24 hours to resolve the issue. Companies are encouraged to follow this question with an open-ended request for elaboration, soliciting the reasons for a customer's rating of that company or product. These reasons can then be provided to front-line employees and management teams for follow-up action. ^[2].

FISHCAKESProponents of the Net Promoter approach claim the score can be used to motivate an organization to become more focused on improving products and services for customers. They further claim that a company's Net Promoter Score correlates with revenue growth. Discussed at length in The Ultimate Question: Driving Good Profits and True Growth written by loyalty business model expert Fred Reichheld of Bain & Company, and "Answering the Ultimate Question" by Richard Owen and Laura Brooks, the Net Promoter approach has been adopted by a large number of large companies, including Philips, GE ^[3], Allianz ^[4], P&G ^[5], Intuit ^[6], American Express, ^[7] and Westpac Banking Corporation.

Criticism of NPS

Despite its popularity among business executives, the Net Promoter concept is controversial in academic and market research circles. Research co-authored by loyalty consulting competitor IPSOS Loyalty disputes the claims of Reichheld concerning Net Promoter. ^[8] Furthermore, Hayes (2008) found no scientific evidence that the "likelihood to recommend" question is a better predictor of business growth compared to other customer loyalty questions (e.g., overall satisfaction, likelihood to purchase again). Specifically, Hayes found that the "likelihood to recommend" question, does not measure anything different than other conventional loyalty-related questions. ^[9]

Environmental factors may exert an influence on customers' response to the "recommend" question—making comparisons across business units or industries difficult in certain cases. Examples include comparing businesses with an associated social stigma (e.g., cigarettes or online dating) and businesses with different levels of service fulfillment (e.g., delivery services as compared to gyms). Moreover, determining when the survey should be delivered may be more obvious in some cases than in others (such as in the case of a gym), where customer attitudes may be likely to change over time.

Daniel Schneider, Jon Krosnick, et al. found that out of four scales tested, the 11-point scale advocated by Reicheld had the lowest predictive validity of the scales tested. ^[10] Others have taken issue with the calculation methodology, claiming that by collapsing an 11-point scale to three components (e.g., Promoters, Passives, Detractors), significant information is lost and statistical variability of the result increases. ^[7] The validity of NPS scale cut-off points across industries and cultures has also been questioned. ^[11]

On the other hand, other independent research confirms the fundamental claim of a relationship between relative competitive Net Promoter Scores and competitive growth rates. ^[12] Similarly, research in Australia by Mark Ritson also supports the conclusions. ^[13] Proponents of the Net Promoter approach point out that the statistical analyses presented prove only that the "recommend" question is similar in predictive power to other metrics, but fail to address the practical benefits of the approach, which are at the heart of the argument Reichheld and SatMetrix put forth.

Proponents of the approach also counter that analyses based on third-party data are inferior to analyses conducted by companies on their own customer sets, and that the practical benefits of the approach (short survey, simple concept to communicate) outweigh any statistical inferiority of the approach. ^[7]

Industry examples

Because of its emphasis on radical simplicity, the Net Promoter approach is both popular among business leaders and controversial in the market research community. ^[14]

Research by Fred Reichheld, supported by independent research by Paul Marsden of the London School of Economics and Mark Ritson of Melbourne Business School ^[13], claims a positive correlation between NPS and growth of the company. ^[15] General Electric, for example, uses Net Promoter Score to drive process excellence for its customers, and plans to use NPS as a metric to decide the compensation of its leaders ^[16]. Procter and Gamble uses Net Promoter Scores to measure the health of its brands. ^[5] Allianz uses Net Promoter Scores to help it achieve what it calls "customer-centricity". ^[4] Other companies using NPS include American Express, BearingPoint, and Intuit. ^[17] Verizon Wireless also uses NPS in all business channels including their call centers and retail stores. ^[18]

References

• Reichheld, Fred. The Ultimate Question: Driving Good Profits and True Growth, Harvard Business School Press, 2006.
• Reichheld, Fred. "The One Number You Need to Grow”, Harvard Business Review, December 2003

See also

• The Loyalty Effect
• Relationship marketing

External links

• NPS on GE's website — also see Net Promoter Score, General Electric 2007 Corporate Citizenship Report
• Industry Week — covers GE's efforts to implement NPS (Link accessed on 6 July, 2006)
• A Longitudinal Examination of Net Promoter and Firm Revenue Growth by Keiningham, Cooil, Andreassen, and Aksoy
• Official Net Promoter web site — including resources for additional learning about the concept — requires JavaScript for most pages

• Net Promoter Loyalty Partner Canada's first Net Promoter partner, has an in-depth section about the Net Promoter score, how it is calculated and has a blog explaining how to implement and best practices