In 2020, a reported two-thirds of Fortune 1000 companies are using Net Promoter Score (NPS). In fact, at IBM the executive in charge of NPS has said “It’s more than a metric. One could use the word religion”.
One can see why NPS has become the default metric to measure customer sentiment and satisfaction, however, there are weaknesses to consider that may cause you to question how it’s used in your organization or if there are other measures that should be used in its place or to augment it.
Let’s start with the basics. What is NPS?
If you aren’t familiar with NPS it’s a simple to understand metric that tracks customer loyalty and satisfaction. Part of its appeal is that it asks customers to answer one simple question: “On a scale of 0-10, how likely are you to recommend this company to a friend or colleague?”.
Your NPS score is a simple equation that takes the % of promoters (people who give you a 9 or 10 on your survey) and subtracts the % of detractors (people who give you a 0-6 on your survey). The result of that equation is your NPS score. Generally anything above a 0 is considered a good score as you have more promoters than detractors. Bain & Company, who created NPS, consider scores above 20 as great and above 50 as amazing.
This sounds simple, easy to understand, and everyone is using it so what is the problem?
One of the criticisms of NPS is that it doesn’t measure behavior only intent ”how likely” is the core of the question. Today’s most progressive data driven companies take the opposite approach. They collect data on actions and behaviors and infer attitudes and intent from it.
In fact, there are no large-scale studies that show any correlation between your percentage of promotors and actual referrals or that promotors are even more likely to do additional business with you.
Cornerstone Advisors conducted a survey of 2,506 US consumers in Q2 of 2019 that measured actual consumer actions in the banking sector. Here are the results:
As you can see there is no correlation between customers adding products or referring a company to family or friends and a company’s NPS.
Bank of America tied USAA for the highest percentage of consumers that added products even though Bank of America's NPS score is less than 1/3rd of USAA's NPS score. Our leader for highest actual referrals is Capitol One which was tied for the third lowest NPS.
Another criticism of NPS is that in and of itself it doesn’t tell you anything about why your NPS is moving in a given direction (positively or negatively) or why there are differences in NPS scores for your organization or between you and your competitors.
Let’s say Citibank determines that 20% of their branches are the leading contributors to their low NPS score because those branches radically underperform the other 80% of their branches. The problem for Citibank is that their NPS scores by branch give them zero insight into the drivers behind the underperformance of those branches.
The obvious question is why measure NPS if it doesn’t help us understand underlying drivers behind customers perception of your company or actual behavior?
Another criticism of NPS is that the financial performance of companies also isn’t correlated to NPS. A quick look at the top 10 companies in the Fortune 500 shows that 40% have a bad NPS score (with more detractors than promoters) and only 1 has a score that would be considered great.
Fortune 500 Rank
While we believe there is value in measuring NPS organizations need to understand the limitations of using NPS as their sole or primary measure of customer loyalty or satisfaction.
Additionally, if companies want promoters to act on their intention to refer their companies to family and friends, they need a comprehensive approach to turn intent to action.
Have you considered sending a referral link to NPS survey promoters where they receive a percentage off coupon on their next purchase for every friend or family member that makes a purchase using their link?
What are my alternatives?
In our next blog we are going to examine alternative methods for measuring customer satisfaction and loyalty. One you probably are using today or have heard of, CSAT, but one is a relative newcomer and is 1.8x better at predicting loyalty than CSAT and 2x better than NPS.
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