NEWS ANALYSIS: Customer analysis tool comes of age

Net Promoter Score (NPS) is a system for analysing customer loyalty that is both exciting marketers and upsetting research firms. One early convert to the NPS metric discusses its use for PROs.

The Net Promot­er Score (NPS) has been gathering promoters and detractors ever since Bain & Company director Fred Reichheld created it – and especially since his paper, entitled ‘The one number you need to grow’, appeared in the Harvard Business Review in December 2003.

In the last few years, businesses around the world have been assessing the value of NPS. Some of the largest and most successful have adopted it, not just as the key metric for their business, but also a technology for business improvement.

Act on analysis data
Some research firms have been working hard to undermine its value, perhaps because they see Reichheld’s ‘Ultimate Question’ as a threat to their income. Despite their efforts, NPS is gathering ground, because for those that use it, it exceeds their expectations.

Whatever the reason, NPS looks like it is here to stay. It has been descri­bed as ‘the most important business discipline since (planning tool) Six Sigma’. In fact, there is enough interest in the metric to support a two-day, sell-out conference in London. But does this conference represent a tipping point in its use in the UK, or is it just another business fad?

I’ve worked with NPS since 1995 – I was an early adopter and now I’m a con­firmed pro­moter. I like its simplicity – it requires just one question to be answer­ed (see Datafile, below). It then creates a recommendability snapshot – the difference between positive and negative word of mouth. The better the score, the more likely you are to perform well.

But the system has gathered detractors for the implication of this link between percentages of customers willing to recommend a brand and future sales. Despite the London School of Econo­mics proving this link, some firms have failed to do the same.

In my opinion, this ‘predictor’ quality can be a distraction, because some organisations may stop at this simplistic level. It is better to use the metric to identify the causes of detraction and promotion, and to adjust your operations and marketing accordingly. This is the real strength of Reichheld’s creation. If firms ask their customers these profound questions on a regular basis and act on the answers, they can deli­ver a lasting impact on the bottom line.

NPS should be embraced in all ­comms activities, because it connects to PROs’ daily work and resonates in the boardroom. Few, if any, other measures that PR has mustered to prove its ­credibility in the past are as meaningful to the CEO. Advertising Value Equivalents, Opportunities To See and even brand affinity simply do not have the same cut through as the answer to the question: ‘Are we creating advocates

Power of recommendation
There are two powerful reasons why business and comms people should take notice. Firstly, recommendations create recommenders. It is a positive reinforcement loop of huge value to a business. Look at the chart of Simple’s recommendability (see graph, left). A low NPS score for non-users is to be expect­ed as they have not yet had the experience. A good NPS for users shows that Simple is popular with people who have used it.

But look at the impact of recommendations on the NPS. Users who arrived at the brand via a recommendation have an NPS of 65 per cent, almost three times the standard NPS, with double the promoters and almost zero detractors. So if they bought into the brand by recommendation, they are more likely to recommend it to someone else.

Setting expectations where they can be exceeded is the key to business and PR success. On the strength of this, we created a recommendation generator for Simple at www.SimplyCity.me.uk, which has attracted thousands of brand advisers in under three months.

The second outcome from NPS scoring is that negative recommendations are almost four times more influential than positive ones. PROs are used to the disciplines of protect and promote, so NPS should be manna from heaven in the hunt for a place in the boardroom.

Another reason why NPS can be vital to business is that personal recommendations appear on the internet in blogs, forums and social networks, to name but three. PROs must have their finger on the pulse of the Web 2.0 recommendability. That is why we have created an Advocacy Index – an NPS rating using the power of Google.

So is NPS the most important management discipline since Six Sigma, as Reichheld suggests? Only time will tell. But my work in the last few years proves it can deliver untold value to organisations prepared to embrace it fully.

Crispin Manners is founder and director of service innovation at Kaizo.

DATAFILE: The ABC of NPS

Net Promoter Score is a metric that requires you answer just one question: ‘How likely on a scale of 0 to ten are you to recommend company/product X to a colleague or a friend?’ The answer separates customers of a product or service into three groups divided by one thing – the difference between the expectations they had of the product/service before using it and the experience they had after using it.

With lower expectations, you create a detractor, who will make negative recommendations. When expectations are met, you create what Reichheld calls a passive, who does not feel strongly enough to recommend either positively or negatively. When expectations are exceeded, you create a promoter, who will make positive recommendations.

The Net Promoter Score is calculated by subtracting the number of detractors from promoters. Passives are ignored because you create your recommendability Balance Sheet – your ability to create advocates. You can then deduce that a firm with more promoters than detractors will perform better than one in the reverse position.

 

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