NPS tracks brand health

Back in 2003, Reichheld proposed the Net Promotor Score as the “one number you need to grow”. Two decades later, we know it is a bad measure of customer loyalty. However, a just published paper by Sven, Michele, Lisa and Nick Lee shows it is a good measure of brand health, and that improvements in NPS predict future (next quarter) sales growth. In the studied US sportswear market, an increase of one NPS point leads to sales growth of 1.458 pp., or about $11 M in the following quarter. Three key messages stand out to me.

First, it is the change in NPS, not its level that matters. Managers should not be lulled into complacency by their high NPS score, as the studied brands with a high score tended to see lower next quarter sales growth than those with a low score! Instead, brands who improved their NPS were more likely to see next quarter sales growth.

Second, NPS should not be tracked only for existing customers (as originally intended), but for all potential consumers in the category. Recent publications split the consumer journey metric into pre-purchase (awareness and consideration), purchase (eg purchase intent) and post-purchase (e.g. experience, satisfaction, word-of-mouth). NPS captured for current customers would capture information only on the ultimate stage of the customer journey, and can be considered to be a measure of customer loyalty; while NPS captured for all potential customers represents an aggregated metric across all stages of the customer journey, as every potential customer answers the NPS question. Therefore, NPS measured for all potential customers could be viewed as a measure of overall brand health, which appears to best describe the current managerial usage of NPS. The empirical investigation of 7 brands in the US sportswear industry indeed shows that changes to this brand health version of NPS predict future sales growth.

Finally, if NPS measures brand health, which classic journey metric does it most relate to? Brand consideration, with a correlation of 0.671. The authors find that NPS and brand consideration are equally good predictors of sales growth and they outperform brand awareness and purchase intent.

The authors conclude that “consumers respond differently to the four customer mindset questions along the consumer journey (even if there is a common underlying favorability), and thus each of the metrics used carries different information”. Brand can use use NPS as a forward-looking overall brand health metric, and track NPS for all potential customers. Importantly, these findings imply that brands cannot grow solely through the benefits associated with customer loyalty; they also need to attract additional new customers to nurture brand growth. ‘How Brands Grow’ all over again!

A few caveats: to get actionable insights, brands need to follow up NPS changes with more specific diagnostics, including exploring if the respondent is currently a customer, a former customer or has never purchased the brand. Second, like any other metric, NPS can explain only a fraction of future sales growth by itself: managers need several metrics to gauge brand health. Finally, the empirical part of this study only considered 7 brands in the US sportswear market; the type of frequently repeated, emotional purchase for which NPS should perform especially well. Replication in other categories, countries and time periods is needed for generalizable results.

So What is your experience?

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