TidySurveys' Blog

Is Net Promoter® Worth The Hype?

By Griffin Granberg on January 27, 2014

Net Promoter® is an immensely popular metric, and you should know yours.  But after working with NPS® and the companies who make use of the number, our take on when and where to use it as a management tool might surprise you.

One of the first terms that companies start hearing when it’s time to get serious about measuring customer experience is Net Promoter®.

Net Promoter® is a terrific metric, and like any meaningful one it provides us with valuable information about the direction in which a company is heading. But implementing new strategies based on this information can be tricky, especially as regards your front-liners.  It’s often the first real challenge that we see companies face once the rubber meets the road with their Voice of the Customer initiative.

As you probably already know, NPS® scores are calculated in order to help companies predict customer retention rates (people often use the shorthand, “loyalty”) and the resulting changes in revenue over time.  Check out Wikipedia’s slightly wordy description of the system here.

The first time that most of mainstream corporate America heard of NPS® was in Fred Reichheld’s landmark 2003 Harvard Business Review article titled The One Number You Need to Grow.   Later, Reichheld wrote The Ultimate Question: Driving Good Profits and True Growth, a book which further explains the value of the score.  (He later co-authored The Ultimate Question 2.0.)

Here is how NPS® works.

First, you ask your customers one question: “How likely is it that you would recommend this company to a friend or colleague?” Customers respond on a 0- to 10-point rating scale and are categorized as follows:

1. Promoters (score of 9-10): Loyal enthusiasts who will keep buying and referring others, fueling growth;
   
2. Passives (score of 7-8): Satisfied but unenthusiastic customers who are vulnerable to competitive offerings; and
3. Detractors (score of 0-6): Unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

To calculate your company’s Net Promoter Score (NPS)®, you take the percentage of customers who are promoters and subtract the percentage who are detractors. The result is a number ranging from -100 to +100, with a positive score usually viewed as good and a score of +50 or more usually viewed as excellent.

Proponents claim that this metric works similarly across industries with remarkable accuracy, and because of its popularity and the extensive data available on it, we, too, think it’s pretty solid.  Problem is: it’s not simple.  The formula to calculate it is really hard to remember and even harder to explain.

You understand it. Your regional managers understand it. But do your front-line employees take the time to do the same?  And if not, what’s it good for?  How do you apply it to your customer service systems in any meaningful way if it becomes an arbitrary number to the employees who matter most in your customers’ experience?

Well, consider this.

Nearly every company in the world that uses TidySurveys uses the data (the answer to the Recommend to a Friend question on their TidySurveys-powered surveys) to put their Net Promoter® scores in front of their executive management team.

But when it comes time to share that data with front-line teams, they nearly always choose to simply base those discussions (and all the attendant automated reporting) on the more easily absorbed average score.  Some use the average of Recommend to a Friend.  Others use the simple average grade on their core, actionable questions combined with Recommend to a Friend.

The interesting thing about this is that a stack ranked list of locations by NPS® and by simple average score are almost identical.

The upshot?  Calculating NPS® is easily automated and reported, so be sure you’ve got it handy for benchmarking purposes within the executive offices.  But on the front lines, skip the white board.  You’ve got more effective options for expressing the same results.

And the simpler system is, of course, a lot easier for many of your employees to understand. As a result, this is the one we communicate to front-line associates, while managers get to see both.

Our conclusion? Net Promoter® scores are awesome, but their use is limited. Here’s what we recommend when tracking and using your NPS®:

1. You gotta be careful. Because the NPS® formula is rather complex, if you’re going to use it, you should definitely follow the “manufacturer’s instructions” so that you know your benchmarking is as accurate as possible.
   
2. One size doesn’t fit all. NPS’s® don’t work the same way for every company. If possible, compare your score to that of others in the same industry.
3. Again: choose your audience. Not everyone is as keen on business metrics as we are. We recommend that when trying to help front-line employees understand your customer loyalty rates, using the simple average “recommend to a friend” score is just as accurate and a lot easier to remember than using the NPS® calculation. That way, you’re free to focus on motivating your employees to do better—not on getting them their business degree. And who knows? The same might go for your division managers as well.

 

 

 

 

NPS®, Net Promoter® & Net Promoter® Score are registered trademarks of Satmetrix Systems, Inc., Bain & Company and Fred Reichheld.