The Net Promoter has been hot recently. Simple to measure it is a loyalty score which is supposed to signal future sales and correlate to value creation. Defined, it is a simple sum of the number of people that promote your brand minus the number of brand detractors. Companies that use it, like it because it is straightforward and requires just one question to their customers - “Would you recommend us to a friends or colleague?”
Originally conceived by loyalty consultant Fred Reichheld and supported by Bain and Satmetrix it has whirlwinded into the minds of CEOs with companies such as GE and American Express using it and apparently on conference calls with analysts. Although it is intuitive that knowing recommenders and detractors has value, it does seem to ignore other factors for market success or value creation. What about slightly important issues such as context of recommendation, pricing, market timing, supply, competition, availability of substitutes, advertising etc. What is seems to suggest is that all of these factors cancel each other out or are set to zero?
Although I am sceptical of the value of the measure in isolation, I go along with the hypothesis that identifying recommenders and detractors is important (in our case finding this in an online context). However over at IPSOS-MORI, they are completely dismissive. Once they put the score to scientific scrutiny (with help from Vanderbilt University,Norwegian School of Management & Koc University) they showed the measure to be largely spurious and even less predictive of future value than the American Customer Satisfaction Index (ACSI) - this is especially controversial as Reichheld states their examination shows that ACSI has no correlation with firm growth…
Conclusions from “The Net Promoter Debate” - an interview with Tim Keiningham Senior VP, Ipsos loyalty (May 2007). Full version downloadable here.
1. “Simple put, we found no support for the assertions attributed to Net Promoter. Our research clearly shows that claims of Net Promoter’s superiority in predicting firm growth, or in predicting customers’ future loyalty behaviours are false. Based on the evidence we’ve compiled, it’s hard to imagine a scenario where Net Promoter would be classified as a superior metric”
2. “As complaints about the effectiveness of Net Promoter have begun to surface, supporters argue that detractors are missing the point; Net Promoter is simple and gets companies to focus on customers. That may well be true, but the research used to support Net Promoter focused exclusively on growth… in particular, Net Promoter’s superiority in linking to growth. Few managers would adopt a metric just because it is simple. Simple and wrong is simply wrong.”
OK, so this debate is hardly new news, with plenty of heated discussion around the topic, but it is scary if the conclusion is that a score presented at calls with analysts is proven to be baseless. In my opinion it should at least get a more thorough review regards predictiveness and although companies should measure who is recommending them (and why) and who detracts them (and why) it may be prudent not to rely too much yet on just one number…