By now you all know Net Promoter Score (NPS), the measure proposed 11 years ago by Reichheld to better predict customer retention and business success. Customers are asked how likely they are to recommend a company to a friend or colleague, and based on their answer classified as Promoters (9-10 on the 10-point scale), Passives (6-8) and Detractors (0-5). The NPS is then calculated by subtracting the % of Detractors from the % of Promoters. For a quick review, see: http://www.linkedin.com/today/post/article/20140224071906-64875646-a-single-measure-of-business-success.
Proponents of the Net Promoter Score (see above link) continue to claim it is (1) a leading indicator of business success, (2) an important leading indicator and (3) the simplest to use of available metrics. Unfortunately they offer little more than correlations and anecdotes to back up these claims. In contrast, scientific studies up to now show no evidence for (1) and (2), and instead point to good-old customer satisfaction as a better metric. Little surprise for me there: I am a happy customer of several businesses I would not recommend. Moreover, it is hard to understand why the NPS would be simpler than the popular ‘top-2 box’ metric which takes the % of customers indicating they are ‘very satisfied’.
However, the latest study sheds a new light on the matter, based on 93 firms across 18 industries. The result is consistent across settings: if you want 1 single and simple measure that predicts customer retention: it is the top2-box of customer satisfaction. However, if you do not mind using multiple metrics, the combination of this top-2 box with Net Promoter Score beats out any single measure. And of course it should. Customer satisfaction and recommendation are two different things (‘constructs’) and combining them should improve your insights. The study’s authors note that customer satisfaction is more cognitive and backward-looking while the NPS is more emotional and forward-looking. For the full report, please contact the authors Evert De Haan, Peter Verhoef (University of Groningen) and Thorsten Wiesel (University of Muenster).
So what have we learned? If you must tradeoff completeness for simplicity, go for the single metric of customer satisfaction, If not, the best approach is to have a dashboard of customer feedback metrics, as recommended by the study authors, by dozens of my colleagues and in my upcoming book. And of course the most important point is that you actually use customer feedback in your marketing decisions making to improve customer satisfaction, recommendations and your company’s profitable growth. Success!
Prof Koen Pauwels
New book available now