NPS was developed by an employee of Bain & Co consultancy in 2003, to provide a way to measure customer satisfaction as it correlated directly to increased sales. The method – traditionally a simple one question survey – asks customers to rate their experience on a scale from 0-10. An NPS Score is derived by subtracting the percentage of customers who rated 0-6 (“detractors”) from those who rated 9 or 10 (“promoters”). Those who score 7 or 8 are considered “passives” and not counted in the calculation. While the score has been massively popular in boardrooms across the US, it is not without its critics…
A recently published story in the Wall Street Journal – The Dubious Management Fad Sweeping Corporate America – is one of the more damning recent examples. Based on an investigation of the company reports of over 688 S&P 500 Index businesses, the piece questions the ‘cultlike’ following NPS has developed, and while not outright claiming it to be a false indicator of performance, enough questions are raised to suggest the authors aren’t fans.
Part of the appeal of a system like NPS to the busy executive must surely lie in its apparent simplicity. “Push the score up and you make more money”, provides a simple goal for a distracted mind. And while there is evidence to suggest that NPS may be reasonably effective as a superficial performance indicator, good or bad, it is much more limited as a tool to show businesses where they should be focusing their valuable time and energy.
Though expanded versions of NPS have been developed to include follow up questions asking why a customer is scoring them a 7 rather than a 9, response rates tend to be so low (5% according to the WSJ source) as to be almost meaningless as a realistic representation of actual customer sentiment. The glut of companies in recent years whose sole purpose is supposed to help to businesses improve their NPS, smacks of naivety at best and opportunism at worst.
‘Managing to a metric’ comes with its own cultural baggage for organizations too. Companies who focus solely on NPS, tend to be very good at creating employees who are very good at, well, achieving high NPS scores. The ‘one-size fits all’ design of NPS can also offer a somewhat reductive way to view the lived complexities of the modern retail environment. Businesses who listen to the needs of their customers as a strategic goal are likely to see an uplift in NPS regardless.
In our own work, we’ve noticed that more often than not context is key (something not always captured by NPS as a standalone figure). Analyzing the data from one of our clients, we noticed that both ‘Indifferent’ and ‘Promoter’ customers tended to have very similar profiles of spend and basket size. For this business, NPS wasn’t a great predictor of spend in the short term at all.
Only by looking across a much longer time period were we able to identify that that ‘Promoters’ (and even then, only those who scored absolute highest) were more likely to return and make subsequent visits. While this aligns with the NPS philosophy and suggests good news for businesses who rely on subscription models or customers who make frequent repeat visits, for the business looking to maximize the value of a single but high-value transaction, an NPS score might mean very little.
At TruRating, while we offer a version of the NPS question within our toolkit, it is only a small part of what we do. By giving businesses the ability to ask questions across a range of metrics, including specific initiative-based questions, tied to a response rate of up to 80%+, we are confident in the claim that we offer merchants a much more robust and actionable solution.