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Net Promoter Score – the “Ultimate Question”? The Pros and Cons

Net Promoter Score (NPS) is a great customer feedback tool. Obviously feedback is important but how doNet Promoter Score Advantages and Disadvantages you do it? What about the “ultimate question”, – would you recommend our company to a colleague or friend? If you do decide to measure your Net Promoter Score (NPS), our Customer Experience Auditing tool allows you to ask the question “Would you recommend our company to a colleague or friend?” by email. We take the work out of sending the emails and collating the responses allowing you to focus on fixing the problems. It can also be tailored to ask the question around specific experiences so you can create a NPS for each experience or touch point, helping you identify weak touch points.

What Is The Ultimate Question?

A colleague who runs a small consultancy asked if I could recommend a good IT company as there are so many out there all professing to be the best. It was difficult because if I recommended a company he was unhappy with, it would reflect badly on me and my reputation would be tarnished in his eyes. As a result I gave a very guarded and qualified recommendation.

How To Calculate Your Net Promoter Score

And that is what Net Promoter Score is all about. The question is “How willing are you to recommend our company to a colleague or friend on a scale from 0 to 10?” Anyone who gives you a 9 or 10 is a Promoter . Those answering 7 or 8 are Passively satisfied. A customer answering between 0 and 6 or less is a Detractor.

All you have to do is subtract the percentage of Detractors (0 to 6) from the Percentage of Promoters (9 & 10) and you come up with a NPS, which correlates positively with company growth and profits. Put in a formula: NPS = %P – %D. That’s it. Game over, how much simpler could it get?

Promoters represent customers who act as active sales staff getting their friends to use you. You need as many Promoters as possible – increase your Promoters by 7% and your company could grow by 1%

Passives refer others at a rate less than half of Promoters and will switch allegiance at the whiff of a better deal from your competitors.

Detractors are angry or annoyed customers and go around bad-mouthing you to their friends and colleagues. They force up your acquisition costs as you cannot rely on walk-in business, you have to hire a sales force to compensate for the lack of referrals. They also demoralise your staff by calling in to complain and who likes dealing with angry customers? “They suck the life out of a firm” declares Reichheld. A 2% reduction in Detractors could grow your company by 1%.

NPS Controversy

Sounds very intuitive and simple and it is. But it has also caused a lot of controversy when Fred Reichheld wrote his book stating this was “The Ultimate Question”. Reichheld said it was superior to any other customer survey and there was a high correlation between a company’s NPS and its growth. Research companies immediately protested saying there are other methodologies that are just as good and soon the Internet was abuzz on the pros and cons of Net Promoter Score.

The Logic of NPS

The one thing I like about NPS is it is intuitive and easy to understand by everyone in the company. Think about it logically; happy customers buy more and spread the good word about your company while unhappy ones buy less and complain more. So if you increase happy customers and reduce unhappy ones, your business will grow. If your business has happier customers than your competition your company will grow faster than your competitors, which is good. Very logical!

Choosing a Customer Survey Tool

Often companies are deterred from measuring customer satisfaction or loyalty because so many theories abound they don’t know where to start, so companies shelve research even though they know it is important. NPS is something anyone with access to email, time,  and a spreadsheet can set up and measure. If you aren’t measuring your customer satisfaction or loyalty and want to, I recommend you start out with Net Promoter Score. But before you do, remember it has its advantages and disadvantages!

Advantages of the Net Promoter Score

NPS makes customer experience real in the executive suite. Top level management can see customer scores for their company and measure different departments against each other making inter departmental competition for the best Net Promoter Score a healthy one. It introduces a common language that is easy to understand by everyone – is this customer a Promoter or a Detractor?

Using the same language helps brings about cultural change, a change around being customer driven rather than department and product focused. Remember: this is NOT a metric but an APPROACH to improve customer loyalty. If your NPS is low, you have to contact the Detractors and find out what they don’t like about your company and fix the problems. Also contact your Promoters and find out what you are doing right and make sure you carry on doing that.

The true advantage of the NPS is you can diagnose drivers for each situation and fix problems. You can use the insights from your score and the follow up enquiry to drive change. Very importantly, it punishes departments or silos that have Detractors and motivates them to improve to increase their NPS score. This helps eliminate corporate politics as it is the customers’ perspective about what’s wrong, not a “gut feel” by someone politically connected.

To get a Promoter you have to be REALLY GOOD. To get a score of 9 or 10 you have to blow your customers’ socks off. If you do this regularly to all customers word will get out and new customers will come on board. This is the cheapest way to grow your company. Fred Reichheld says critics are missing the forest for the trees. Net Promoter is effective, because it forces top executives, and other managers, to focus on creating happy customers. Too much market research is based on complicated formulas and long questionnaires that few customers complete. The simplicity of NPS – one question, one number to track – rankles market researchers vested in other approaches.

Disadvantages of the Net Promoter Score

There are other means of measurement to determine customer loyalty just as effectively, though they can be more complex and expensive to implement. It is dangerous to run your company strategy on only one score. Better to have multiple means of customer measurement to truly understand what makes your customers tick. Subsequent research by other parties appears to refute the NPS as a successful predictor of a company’s ability to grow. Some measures perform better in particular markets and sectors, or for particular types of customers. Reichheld himself even admitted that the question is “simply irrelevant” in certain markets and sectors.

NPS does not tell management teams what’s working and what needs change. It says little about what motivates individual purchasing choices. Knowing the overall NPS doesn’t give any information about the makeup of the Promoter and Detractor populations. Because of this, Net Promoter Scores without follow up conversations with customers have little to offer management teams in the way of actionable next steps.

So if you don’t have a customer feedback method or system in place it could be a good idea to look at implementing a Net Promoter Score. It is cheap and easy to do and if you decide to change or later expand your measurement metric you will not have wasted a huge investment and in the meantime you have huge insights into your customers’ perceptions of your company.

REFERENCES

  • Fred Reichheld “The Ultimate Question”, (Harvard Business School Press, ISBN 1-5319-783-9)
  • The Ultimate Question—A Disruptive Concept – Jay Curry
  • Advocacy drives Growth – Customer Advocacy Drives UK Business Growth – Dr P Marsden, A Samson, N Upton
  • Customer Satisfaction Strategy – White paper – The Pros & Cons of Net Promoter Score http://www.customersatisfactionstrategy.com/netpromoterscore.html

Douglas MacGregor

Customer Relationship Auditing

  • “Building superior business relationships through client intelligence”
  • +27 (11) 805-3588 (direct)
  • +27 (82) 414-9394 (cell)
  • douglas@cra.co.za

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