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The Net Promoter Score debate and the meaning of customer loyalty
| Content Provider | Semantic Scholar |
|---|---|
| Author | Hayes, Bob E. |
| Copyright Year | 2008 |
| Abstract | The Net Promoter Score (NPS) is used by many of today's top businesses to monitor and manage customer relationships. Fred Reichheld and his co-developers of the NPS say that a single survey question is the only loyalty metric companies need to grow their company. Despite its widespread adoption by such companies as General Electric, Intuit, T-Mobile, Charles Schwab and Enterprise, the NPS is now at the center of a debate regarding its merits. I will summarize the NPS methodology, including its developers' claims and opponents' criticisms. Additionally, I will discuss and study the meaning of customer loyalty as it is measured through survey questions. Finally, I will illustrate how the predictability of business performance measures can be improved when the specificity in the loyalty question and business performance measure is the same. The NPS is calculated from a single loyalty question, “How likely is it that you would recommend this company to your friend or colleague?” Based on their rating of this question using a 0 to 10 likelihood scale where 0 means “not at all likely” and 10 means “extremely likely,” customers are segmented into three groups: Detractors (ratings of 0 to 6); Passives (ratings of 7 and 8); and Promoters (ratings of 9 and 10). A company can calculate its Net Promoter Score by simply subtracting the proportion of Detractors from the proportion of Promoters. NPS = prop(Promoters) – prop(Detractors) Reichheld and the other developers of the NPS, Satmetrix and Bain & Company, have made very strong claims about the advantage of the NPS over other loyalty metrics. Specifically, they have said: The NPS is “the best predictor of growth” (Reichheld, 2003) The NPS is “the single most reliable indicator of a company's ability to grow” (Netpromoter.com, 2007) “Satisfaction lacks a consistently demonstrable connection to . growth” (Reichheld, 2003) Reichheld supports these claims with research displaying the relationship of NPS to revenue growth. In compelling graphs, Reichheld (2006) illustrates that companies with higher Net Promoter Scores show better revenue growth compared to companies with lower Net Promoter Scores (see left graph in Figure 1). Reichheld sites only one study conducted by Bain & Company showing the relationship between satisfaction and growth to be 0.00. cu st om er s at is fa ct io n re se ar ch |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://businessoverbroadway.com/wp-content/uploads/2011/01/BOB_Customer_Loyalty_2.0_Quirks.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
