The Promise and Perils of NPS

(This i s a guest post by Shelley West of the Marketing Leadership Council , our sister program for heads of Marketing.)

I was recently at the Satmetrix Net Promoter 2.0 conference in lovely San Francisco learning how companies big and small across a variety of industries employ this method of collecting customer feedback.

For the uninitiated, Net Promoter Score (often referred to as NPS) is a way of assessing a company based on just one question: "How likely are you to recommend ABC Company to a friend or colleague?"  on a scale of 0 to 10.  Those who answer 0-6 are "Detractors," 7's and 8's are "Passives," and 9's and 10's are "Promoters."  Net Promoter Score is determined by subtracting Detractors from Promoters.  The system is based on the joint work of Bain & Company, Inc. and Satmetrix.

Honestly, I am not really sure what I think of NPS – can you really figure out what you need to know about how your company is doing with just one question?

As questions go, it seems like a good one, but is it enough?  While it may be "The Ultimate Question" (as so declared by Fred Reichheld in his 2006 book that popularized this method), the answer is certainly not that simple.  To be fair, even within the book, Mr. Reichheld (who was a speaker at the conference) admits you don't just ask one question.  At very least, you ask two – the second being "Why did you reply the way you did to the previous question?"

The companies who believe in NPS (and there are many) and use it well (perhaps fewer of those), know that it isn't really about a score. (SEC Members, view the results of our recent sales metrics benchmarking work to see how many companies use NPS as one of their primary customer metrics.)

NPS, when done right, is a quick-pulse way to spot problems and, more importantly, to address and try to solve those problems.  Analysis of the text verbatims from the "Why" questions can provide rich insight as to the root cause behind what is causing customers to be Detractors.  And the best companies have closed-loop systems that follow-up with Detractors to try and fix the problem (or at least understand it better to avoid repetition in the future).

Many organizations have tied compensation of executives to Net Promoter Score, which really means they are tying compensation to having happy customers, not just profits.  The presentations I saw at the conference are not about survey techniques or research methods, but about how companies orient their corporate focus around and then truly deliver an exceptional customer experience. (SEC Members, see what drives an effective customer experience.)

There are a lot of ways to misuse NPS as well.  The biggest error seems to be managing the score instead of the elements of the customer experience that drive it.

As an example, when you take your car to be serviced at the dealership and as you leave your service tech says something like, "In a few days you'll get a survey, I hope you'll respond that you are extremely satisfied with your service and if you feel you can't do that, please tell me now what I can do to change your mind."  You don't say anything, even though your experience was less than marvelous, but when you get that survey you feel compelled to pick the top response.  The dealership has managed its score, but not learned anything about how it could have made your experience better or how it might actually inspire you to recommend it to others.

Rob Markey, partner at Bain and co-author with Reichheld of "The Ultimate Question 2.0" spoke at the conference and offered some good insight.  He said, "The number is meant to reflect an underlying reality…the point of measuring is to lead to action to earn customer loyalty."

Do you use Net Promoter Score?  What do you think of it?  Is it the "Ultimate Question" or is there a better one?  Is one question enough?

SEC Members, to see how many of your peers use the NPS metric to track customer loyalty, view our interactive sales metric benchmarking tool. And for more information on the drivers of customer loyalty, visit our new Commercial Teaching topic center.