I just received a great question: “Why do companies have a very healthy growth although their NPS is low and vice versa why can growth be decreasing although the NPS is very high?” I get asked versions of this question all the time, so I decided to capture my typical answers in this blog post (check out our Net Promoter Score (NPS) Resource Page).
My take: We’ve found a high correlation between NPS and customer loyalty across a large number of industries. But that does not mean that NPS will provide a clear understanding of a company’s business results. There are many reasons why a company’s business might perform differently than its NPS might suggest. Here are some of the common reasons that I’ve seen:
- NPS is not the ultimate question. In many situations, the amounts of promoters and detractors are roughly correlated with customer loyalty and business success, but that’s not always the case. It’s not a universally good metric as it’s not correlated to business success in all situations. For example, NPS may not be at all indicative of business success if customers are trapped because of a high switching cost, limited competition or monopolistic power of the company, unique product or service offerings, etc.
- Comparison NPS trumps absolute NPS. In general, health plans have low NPS scores yet many of them do well financially. Customers may not be likely to recommend their health plan, but if they don’t believe that there are any better options then it will not affect their loyalty.
- B2B roles are under-appreciated. There are different dynamics in B2B situations. If we ask treasury assistants in large companies to provide an NPS for commercial banks, we might believe that it should represent the health of a bank’s business. But what happens if CFOs, who control the banking decisions, give banks a completely different NPS.
- Non-customers are often overlooked. A retailer may have a high NPS, but still lose share if its products and services start appealing to a narrower audience. This type of situation is often missed, because companies tend to get considerably more feedback from existing customers than from prospective non-customers.
- Segmentation can alter the analysis. When an organization looks at its overall NPS, it might miss important trends in different customer groups. What happens if NPS is getting lower for high value customers and getting higher for low value customers? The overall NPS could stay the same or even improve while the company’s results decline.
- Survey design affects results. Many companies have a mismatch between the way they deploy NPS surveys and the insights they attempt to glean from the data. Companies ask the NPS questions at different times and frequencies, which can affect the overall results. If we ask NPS after a customer service event, then the results will likely be different then if we ask it periodically to a random sampling of customers.
The bottom line: NPS can be an effective metric in many situations, but only if used correctly
Republished with author’s permission from original post.
Well taken points. And, NPS (along with ACSI/CSAT) has long been shown to have further granular interpretation and actionability challenges:
http://customerthink.com/emerging_chinks_and_dents_in_the_universal_application_and_institutionalization_armor_of_popula/
http://customerthink.com/customer_advocacy_behavior_personal_brand_connection/
I’ve got a blog in the CustomerThink queue which summarizes a 2011 article from the International Journal of Market Research, by Professors Robert East and Jennifer Romaniuk of the University of South Australia: “The NPS and the ACSI: A Critique and an Alternative Metric”.(http://www.ijmr.com/AboutIJMR/Samples/Sample5.pdf) Long story short, the authors injected incidence and volume of positive and negative word-of-mouth into a core customer behavior framework, and compared their results (in several retail and consumer products verticals) to both NPS and ACSI.
Here are their Overview and Conclusion statements from the article:
Overview: “As a consequence, metrics based only on current customers, such as the NPS, do not measure negative word-of-mouth effectively. We show that detractors give little of the total negative word-of-mouth on the brand and that, in two out of the three categories that we studied, detractors were responsible for more positive word-of-mouth than negative word-of-mouth. Similar patterns are found in an analysis based on the ACSI measures, which suggests that the NPS and ACSI are closer than their respective proponents are willing to claim.”
Conclusion: “We show that the NPS and the ACSI do not measure negative sentiments about brands effectively.”
So, in addition to the points you’ve articulated, the non-representation of positive and negative word-of-mouth in understanding consumer decision-making is a critical missing element in making both NPS and ACSI more actionable, particularly at a granular (communication, relationships and emotional connection, functional performance, brand positioning, etc.) level.
Bruce, your point re Comparison NPS trumps absolute NPS is absolutely on the money. I would like to add the trending is another critical element as dramatic increase in NPS may not correlate with operational or financial metrics for a quarter or two.
So, are you saying that NPS isn’t “the one number you need to grow?”
If not, then what is?
For some time, the developers and marketers of NPS (now being promoted largely as a ‘system’ rather than a ‘score) have been ‘walking back’ the original Reichheld positioning and claim that the metric is “the one number number you need to grow.” The more academic and professional evidence that’s reported, the less universality and actionability can be ascribed to the metric. There are more real-world and useful metrics, which reflect word-of-mouth and brand favorability decision-making effects. After ten years since the metric was introduced, there is a mountain of such evidence. I’ve addressed this in two recent CustomerThink blogs:
http://customerthink.com/cracks-in-the-single-number-metric-lens-can-be-repaired-with-word-of-mouth/
http://customerthink.com/when-b2b-and-b2c-key-performance-metrics-flatline/
Very informative. NPS can provide information on how satisfied your customers are and how likely they are to stay loyal. However, we know there are a lot of factors when talk about brand loyalty and how likely your customers are to refer your business to their peers. And your companies growth depends on how deep your understanding about all the factors that surrounds it.