By Duncan Brett
Photo by fauxels: https://www.pexels.com/photo/colleagues-looking-at-survey-sheet-3183153/
The NPS has become extremely popular in recent times, probably largely because of its seductive promise of a simple measure which will unlock lots of extra profit. In the second edition of the book, the authors argue that you need to look past the headline score and build an entire management ecosystem. They say NPS now stands for Net Promoter System instead of Net Promoter Score. A survey is just a tool. If you don’t do anything with the information, it is not going to help you.
At times the book can be a little evangelical but there is some sound advice behind the hype. It is full of examples where it has been used. However, there is little discussion of its limitations. (Within the marketing community there are a number of critics)
The basic rationale for NPS is that you need a reliable measure for customer relationships, because they matter. If you don’t have such a measure, then you and your firm will tend to focus primarily on profit (which is very accountable). If this is done at the expense of the customer it can be damaging in the long term.
Reichheld and Markey tell us that NPS is a system with three components.
- Categorise your customers into promoters, passives and detractors.
- Create an easy to understand score based on this categorization.
- Include this score in how you frame success.
Later in the book, they suggest that you add a 4th component: A staff NPS to categorise employees as well.
The NPS is calculated as follows: You ask your customers how likely they would be to recommend you to friends and colleagues on a scale of 0-10. You then ask your customer why they gave the answer they did. Those scoring 0-6 are called detractors, 7-8 are called passive, and 9-10 are designated as promoters. One then subtracts the percentage detractors from the promoters to obtain a net score. Scores vary by region and by industry, but generally if you are +70 then you are world class by this measure, +50 is excellent and if you have an NPS of 0 or negative, you have a lot of work to do.
Context matters, and the authors note that a different question may work better in different contexts. You also need a measure from different perspectives and in the book they highlight three.
Firstly, you need a competitive benchmark. You want a better NPS score than your customers alternatives. You can also break up your company into regions or divisions to spot relative weakness.
Secondly, you need a relationship measure. The recommend question works really well here, but I would tailor your follow up question. Promoters should be asked what it is that they specifically recommend and listen to the language. Passives should be asked what can be done to get a higher rating. Detractors should be probed for what is wrong.
Thirdly is a measure of a recent experience. Recommend is not necessarily the best option here, a question along the lines of “How much effort was it to resolve your problem” or “how easy was your company to deal” with may be a better question here. Matt Dixon’s book “The effortless experience” is a worthwhile read in this area (even though this book is very call centre focused) This could enhance rather than replace NPS in my view.
It is worth bearing in mind that you can apply the math for calculating a net score to any question with a scale – so you can easily calculate a net overall rating, net agreement, net ease of business etc… A net score will also tend to be be more volatile than an average mean score.
Getting an accurate measure on perceptions is not that easy and there a number of issues to bear in mind. These include:
- If you make staff accountable to the results, there is an incentive to try manipulate and game the results to their advantage. You need to be very aware of this. There are lots of examples in the book on how people game results, including staff only pointing out the survey to happy customers. (It is not covered in a book, but Goodhart, an academic, argues that when a measure becomes a target it ceases to be a good measure)
- Sample bias. The authors seem to promote a census approach where you ask everyone. However, promoters and extreme detractors are much more likely to respond than passives and mild detractors. Bias from self-selection is always going to be problem in email or SMS surveys. The authors actually think a telephonic approach is better, but if you don’t want to go that way at the very least you should conduct a validation exercise with random sampling.
- You have to be sure you are talking to the right person. This applies especially to business customers. You have to ask the decision maker, not the intern.
- Should you treat the results as confidential or not? The market research industry will argue you should. Customers will give different answers if they know they are going to be identified and fear they will be drawn into a protracted process to understand what the problem is. This is especially true if the customer has to deal with staff on an ongoing basis and doesn’t want to sour the relationship. Also, some customers just won’t want to get that involved. On the other hand, identifying the customer allows you to close the loop and fix the problem. It may be worth considering keeping your competitive benchmark and relationship measure confidential to promote honesty and your transactional measure open to allow you to close the loop. You can also ask people if they would like to be identified and contacted.
- You need an external party to run this. Your own staff are too close to be objective and neutral. Naturally that is music to a research consultants’ ears.
- Traditional surveys are too long, complex and unwieldy and the results too infrequent. The focus should be on a short, sharp, clear and continuous flow of information.
- You also need to accept that a single question survey will not always give you the depth you need. You will at some point want to conduct more in-depth work to understand what is going on. The book has lots of examples of more traditional techniques like longer surveys, focus groups and immersions.
To make this all relevant to companies you need to tie this into financials, and here the book makes some excellent points.
Firstly, you need to distinguish between good profit and bad profit. Bad profits are earned at the expense of the customer relationship. Think penalty fees, hidden charges and so on. They bring short term profitability but create long term damage. You cannot see this on the balance sheet, but it is there. In the NPS thinking, bad profit creates detractors and good profits can push people towards being promoters.
Promoters are worth more to you, and detractors may actually have a negative value. You are probably familiar with the concept of a customer lifetime value calculation, which is based on the net value of the customer purchases (less costs) in present value terms. However, Reichheld argues the customer value is not just spend. The cost of servicing the customer needs to be counted as well. Detractors complain more – and that costs money. In detractors say bad things about you and that tarnishes your reputation. Promoters recommend you. That has value. What is a recommendation worth? It is not nothing, so spend some time to calculate it. You also need to expend some effort to determine how many people a detractor tells and how much, or indeed whether, a promoter actually recommends. (you can start with some assumptions and do projects to refine as you go along). This will give you some idea of what all that recommending is worth.
In the book Dell is cited as an example where they calculated that a promoter was worth $328, and a detractor cost you $57. With these figures you can work out how much it is worth to convert people.
According to work the authors have done, detractors account for 80% of the bad mouthing and promoters 80% of the recommending. If you rely on word of mouth marketing, then it is well worth while getting a handle on these numbers.
Reichheld claims that NPS is correlated to future profitability. I’m not sure about that. Lots have claimed to have found a key to success, but there probably isn’t a silver bullet solution. I’d recommend reading Phil Rozenzwieg’s The Halo Effect and 8 other business delusions to stop any thinking along those lines. (This is an excellent text, and I am happy to send a summary on request).
That said, a short, understandable way to measure customer relationships, put the customer firmly in management focus, and attach a concrete financial value to it has a lot of merit. You can supplement your understanding with more in-depth projects as required.
I’d also suggest considering changing the question to be more about ease and effort than recommendation for transactional situations.
Please pass questions or comments onto Duncan Brett at duncan@researchlamppost.co.za or +27 21 6718653.