NPS - Valid or Not?
Martha and I both like Fred Reichheld’s Net Promoter Score, which we consider to be a convenient, quick way to get a handle on whether your company is building enough customer equity to sustain your growth and profit in the future. We think of it as a kind of leading indicator of lifetime value change. Most of you reading this blog will already be familiar with Reichheld’s concept, we’ve had a couple of conversations on it elsewhere in this blog, in "CFOs and CMOs - Maybe we can help each other?" and in "My Net Promoter Problem."
Recently a colleague of mine at the British research company Infoquest sent me a white paper called "Net Promoter Score -- The Search for the Magic Pill," disputing the usefulness of NPS as a tool for understanding customer loyalty and value. It is an eight-page analysis, authored by Howard Ploman, President of Infoquest International, and offers an interesting and insightful appraisal of the disadvantages of trying to rely on NPS as an all-purpose gauge of customer loyalty.
I don’t disagree with Infoquest’s general conclusions. Professionally designed, multi-question, high-response surveys are ALWAYS going to give better, more reliable results than single question, lower-response surveys, and the biggest advantage is the prescriptive recommendations that come from the research, not just the “levels” of satisfaction or loyalty measured. But in my experience getting a high response, especially for a multi-question, time-consuming survey, is expensive, especially in the B2B space (which is Infoquest’s particular specialty). It often involves premiums for respondents, and sometimes involves the personal, face-to-face (or voice-to-voice) labor of skilled researchers.
On the other hand, NPS costs very little to deploy as a metric, and can easily be handled in-house, without the intervention of a professional survey research firm. And in my opinion one of the biggest benefits of NPS is that it is educating business people to the very important fact that customer dissatisfaction almost certainly drives more defection than customer satisfaction drives loyalty – a point that is reinforced by the Infoquest paper. It’s my experience that most firms who say they do track customer satisfaction don’t track dissatisfaction. So especially for them, the NPS is a big improvement.
But what does everyone else think? Do the disadvantages of NPS outweigh its advantages?
