Current research on the Net Promoter concept and what it means to you

Since Walker's first article addressing the Net Promoter concept, we have been working with clients and with our own industry data to better understand how NPS stands in relation to our own loyalty measure. Our findings continue to question the usefulness of NPS as a predictor of future financial performance. While we continue to be advocates for the value of recommend as an outcome of loyalty, our own work to date with our clients suggests recommend alone does not provide the most robust linkage to the ultimate financial outcomes. These findings validate our initial position that NPS should be fully tested with your own data before deciding whether to use it in your organization.

In addition to our own testing, a flurry of empirical research by practitioners and academics is zeroing in on how the Net Promoter ideology fits. As is generally true of scientific progress, whenever a new idea attracts enough attention within a field there will be a period of intense empirical investigation to ascertain its validity. We are currently in the beginning stages of this investigation of NPS. Until these efforts are complete, those of us who are collecting and analyzing customer feedback on a daily basis must know how to best proceed. Do we continue as we have in the past, scrap everything we have done in favor of this new idea, or hedge our bets and use both approaches? The answer to this question is forever changing as new information becomes available. So let's review the empirical findings to date:

• The first independent empirical work addressing Net Promoter was a Harvard Business Review letter to the editor by Neil Morgan and Lopo Rego in April 2004. The authors used secondary resources to conclude:
  1. revenue growth (the financial metric used by Reichheld to prove the value of NPS) is not the best financial metric to predict business success
  2. the predictive ability of customer satisfaction/loyalty metrics varies across industry context
  3. no one customer metric predicts different financial metrics equally well.

• Brand Strategy published a second independent article about Net Promoter in January 2006 by three London School of Economics economists. Based on an advocacy study of four UK consumer sectors – retail banking, mobile phones, cars, and supermarkets – the authors found NPS and negative word-of-mouth behavior were significant drivers of revenue growth (positive and negative correlations, respectively) but that customer satisfaction and positive word-of-mouth behavior were not significant drivers of future growth.

• The next empirical test of the Net Promoter concept was published in the September/October 2006 issue of Marketing Sciences and was the first article published in a peer-reviewed academic journal. Identifying six measures of customer satisfaction/loyalty, the authors found that an index of customer satisfaction (loyalty) and a customer satisfaction top-two box score are the best predictors of six popular measures of financial performance followed by the likelihood to repurchase and a measure of customer complaints. NPS was not a significant predictor of any financial performance measure.

• A forthcoming article in the Journal of Marketing (Keiningham, et al.) presents evidence questioning the link between NPS and business performance. Using two longitudinal datasets, the authors are unable to replicate Reichheld's assertion regarding the strong link between NPS and business performance.

All of this recent research on Net Promoter has drawn the interest of the popular business media and on marketing-related blogs. Two recent articles – one in The Wall Street Journal and another in the American Marketing Association's Marketing Power (Dec. 12, 2006) – have reviewed the recent research casting doubts on Net Promoter and have interviewed a number of the individuals involved in the debate, including Fred Reichheld.

So, what should we do with the new information concerning the usefulness of Net Promoter in driving future business success? Here's where we at Walker stand on the issue:

• Be open to new ideas, but move carefully – New ideas are great. They promote vigorous debate and research that will help us all evolve and get better at listening to our customers; however, we should be careful about adopting a whole new approach to collecting customer feedback before it's fully tested and validated. Without enough research on either side of the Net Promoter debate to take a firm stand on the subject, consider the following before revamping your customer feedback methods:
  • Does my current method link to financial outcomes?
  • Does my current method mobilize our front-line reps to take action on customer issues?
  • Does my current method foster a common rallying cry in our organization, regardless of the functional area?
  To the extent that the answer is "no" to any of these questions, we would suggest a review of your current system is in order. If you answer "yes" to all of these, then it would suggest that your current method of tracking customer data is optimizing the return on the investment.

• Recognize that there is no single "ultimate question" – Businesses are much like people – we each have individual quirks and genetic composition that makes us similar, yet unique. This is why, for example, the efficacy of a drug can differ by individual – this is not an indictment of the drug; rather, it is a function of our uniqueness. This is why multiple drugs exist within a single family of compounds – to best account for individual differences among patients.

  In a business context, we need to consider the firm's business model, the type of customer, the frequency of purchases, the competitive landscape, and even the firm's individual culture before we can determine the best course of action. Even with a structured framework like the Walker model, it is not uncommon to "tweak" the framework to optimize the effectiveness of the solution. As such, to suggest a single question is the only one we need seems not only counterintuitive, but naive¹ .

• Let's remember the bigger picture – Let's not let the large areas of common ground amongst the various approaches to customer loyalty get lost in the debate over what number or numbers to track. All of the customer satisfaction and loyalty research over the last four decades – including the recent research on Net Promoter – can agree on one common trend: Listening to your customers and acting on their feedback to improve customer relationships will result in increased business success.

Keiningham, Timothy L.; Cooil, Bruce; Andreassen, Tor Walin; Aksoy, Lerzan (forthcoming). A Longitudinal Examination of "Net Promoter" on Firm Revenue Growth. Journal of Marketing.

Marsden, Peter; Samson, Alain, & Upton, Neville (2006). Advocacy Drives Growth. Brand Strategy, Dec 2005/Jan 2006(198), 45-47.

Morgan, Neil A. & Rego, Lopo (2004). The One Number You Need to Grow. Harvard Business Review, 82(4), 134-136.

Morgan, Neil A. & Rego, Lopo (2006). The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Business Performance. Marketing Science, 25(5), 426-439.

Thurm, Scott. (2006). One Question, and Plenty of Debate. Wall Street Journal- Eastern Edition, 248(131), B3.

Troy Powell

As a statistical scientist with Walker Information, Troy Powell consults on technical marketing research issues to enhance the effectiveness of customer loyalty information for Walker's clients. His responsibilities include supporting and enhancing existing products and methods, generating new products, and providing trainings on research topics. Troy is back at Walker after a five year absence during which he attended graduate school at Duke University. He earned a master's degree in sociology in 2002 and is currently finishing requirements for his Ph.D. from Duke.

Mark Ratekin

Mark is responsible for assisting clients in identifying and quantifying the financial linkage of their customer loyalty management programs. He plays an active role in translating program findings and conclusions into actionable recommendations and works with management and employees to facilitate the implementation of program findings into quality improvement strategies. In addition to his duties to clients, Mark is responsible for the development and deployment of Walker's pricing and scheduling strategies. In this role, he is focused on ensuring that Walker's staffing levels, skills, service offerings and pricing are in synchronization with client demand.

Ratekin earned his bachelor's degree in psychology from Wabash College and his M.B.A. from Anderson University. He is a member of the Professional Pricing Society and is active with a number of nonprofit organizations.