Net Promoter Score (NPS) – can one metric measure so much?

Adrian Cassar: Student ID: 215257131

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We know the saying, “You cannot manage what you are not measuring”.  When it comes to Marketing, it is no exception.  As more and more data is made available to marketers, the importance of selecting what data should be used becomes critical.  Marketers need to be using data that is relevant and will help them measure, assess and guide their marketing actions.  This in turn helps marketers quantify, compare and interpret marketing performance.

Marketing metrics can be grouped together as a set of categorised metrics.  The below figure demonstrates the various types of metrics that marketers can use (Sharp, 2013):

metrics

Memory metrics is one of these metrics types and this includes measures such as brand awareness, customer satisfaction, intention to buy and recommendation.  Net Promoter Score (NPS) is an example of a recommendation metric.

What is NPS?

Many of us have been asked the question, “How likely is it that you would recommend [company X] to a friend or colleague?”

We are often asked this question by product and service providers following a recent engagement with them.

So why it is that these companies are asking the same, single question?  Why is it only one question?  Well, the theory is that to measure customer loyalty and satisfaction, you only need to ask one question.  That sounds too simplistic I hear you say.  Interestingly, you’re not on your own.  The simplicity of NPS does have its promoters and detractors.

NPS was introduced by Frederick F Reichheld in 2003 in his Harvard Business Review paper, “The one number you need to grow”.  Reichheld’s findings were that customers’ willingness to recommend a product or service to someone else could be measured in one question, rather than a multitude of questions.  Reichheld’s findings revealed that the percentage of customers who were enthusiastic enough to refer a friend or colleague—perhaps the strongest sign of customer loyalty—correlated directly with differences in growth rates among competitors.

How does it work?

Customers are asked the question, “How likely is it that you would recommend [company X] to a friend or colleague?”  The response scale is based from 0 to 10.

net-promoter-score

There are three categories of respondents in NPS; Detractors, Passives and Promoters.

Detractors:

Detractors are unhappy customers who answered below or equal to 6.  They were not entirely satisfied with their experience and would probably tarnish your brand’s reputation with negative word of mouth.

Passives:

They are the customers who have answered the question with from 7 to 8.  They are passively satisfied, for now.  Their referrals are likely to be qualified and less enthusiastic. Most tellingly, if a competitor’s ad catches their eye, they may defect.

Promoters:

The customers who answered the question with a 9 or a 10.  Promoters are loyal, enthusiastic fans. They sing the company’s praises to friends and colleagues. They are far more likely than others to remain customers and to increase their purchases over time. Moreover, they account for more than 80 percent of referrals in most businesses.

The Net Promoter Score is then calculated by subtracting the percentage of detractors from the percentage of promoters. Theoretically, it can range from -100 to +100. Practically, it is most likely to hover around 15 for most businesses in a competitive space. An NPS above 40, in fact, is considered exceedingly rare and is regarded as the benchmark for top players of any industry.

Why use NPS?

  • One simple question for customers to answer on a simple scale of zero to ten with 3 simple, consistent groups; Detractors, Passives, Promoters
  • Ease of use. Net Promoter surveys can be conducted via phone, email, internet, in person
  • Quick actions. Due to the simplicity and ease of use, responses can be gathered, analysed and shared quickly with management and staff

Disadvantages of NPS?

  • Not specific enough. It doesn’t specifically identify the reasons WHY your customers may be detractors.  Follow up with specific market research or customer satisfaction surveys is required
  • Requires plan. What happens when your scores come back, particularly if they are low?  You may still need to send out more detailed surveys to pinpoint the issue(s)
  • The question asks the customers their “likelihood” to recommend the brand or service, and business managers must be mindful of this word. In no way does it guarantee that a customer giving a score of 10 will most certainly go ahead and ‘promote’ the business.

 Show me some NPS scores!

 Ok, so here he have a set of NPS scores for a range of companies operating in Australia (Bain, 2013)

capture

As you can see, there is a wide range of NPS across the competing brands.  Additionally within each company, their range of NPS varies.  Take Foxtel/Austar for example, their score sits between -20 and -15 yet Dan Murphy’s has a range of -55 right up to +22.

 Where to next for NPS?

As it stands, it looks like NPS is here to stay, for now (Birkner, 2015). The fact that many of the world’s largest global companies are using NPS would indicate that it has its advocates.

That being said, NPS still lacks substance and the necessary detail that helps marketers better understand their customers and their experience.  From my perspective, NPS has its place but it should be part of a broader set of customer experience information gathering, not the sole source.

References:

Schulman, K, & Sargeant, A 2013, ‘Measuring donor loyalty: key reasons why Net Promoter Score (NPS) is not the way’, International Journal Of Nonprofit And Voluntary Sector Marketing, 1, p. 1, Academic OneFile, EBSCOhost, viewed 18 September 2016.

Wylie, M 2015, ‘Measuring the intangible: measuring customer experience and satisfaction with ‘Net Promoter Scores’ is highly effective’, NZ Business, 4, p. 43, General OneFile, EBSCOhost, viewed 18 September 2016.

Sharp, B 2013, Marketing. [Electronic Resource] : Theory, Evidence, Practice, n.p.: South Melbourne, Vic. : Oxford University Press, 2013., DEAKIN UNIV LIBRARY’s Catalog, EBSCOhost, viewed 29 September 2016.

East, R, Uncles, M, Romaniuk, J, & Lomax, W 2016, ‘Measuring the impact of positive and negative word of mouth: A reappraisal’, Australasian Marketing Journal (AMJ), 24, pp. 54-58, ScienceDirect, EBSCOhost, viewed 29 September 2016.

Burrows, D 2014, ‘Too many metrics: the perils of training marketers to calculate ROI’, Marketing Week, p. 1, Business Source Complete, EBSCOhost, viewed 29 September 2016.

‘MANAGING THE MARKETING METRICS PORTFOLIO’ 2011, Marketing Management, 20, 3, pp. 16-21, Business Source Complete, EBSCOhost, viewed 29 September 2016.

Wyner, GA 2008, ‘Do Financial Metrics Stifle Marketing Creativity?’, Marketing Management, November, Business Source Complete, EBSCOhost, viewed 29 September 2016.

Ambler, T, & Roberts, J 2008, ‘Assessing marketing performance: don’t settle for a silver metric’, Journal Of Marketing Management, 24, 7-8, pp. 733-750, Business Source Complete, EBSCOhost, viewed 29 September 2016.

Mintz, O, & Currim, I 2013, ‘What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?’, Journal Of Marketing, 77, 2, pp. 17-40, Business Source Complete, EBSCOhost, viewed 29 September 2016.

http://www.netpromotersystem.com/about/companies-using-nps.aspx

http://www.bain.com/offices/australia/en_us/publications/articles/the-powerful-economics-of-customer-loyalty-in-Australia-au.aspx

https://hbr.org/2003/12/the-one-number-you-need-to-grow

https://www.ama.org/publications/MarketingNews/Pages/an-nps-pulse-check.aspx

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