Why Net Promoter Score May Not Align With Business Results
January 27, 2014 7 Comments
I just received a great question: “Why do companies have a very healthy growth although their NPS is low and vice versa why can growth be decreasing although the NPS is very high?” I get asked versions of this question all the time, so I decided to capture my typical answers in this blog post (check out our Net Promoter Score (NPS) Resource Page).
My take: We’ve found a high correlation between NPS and customer loyalty across a large number of industries. But that does not mean that NPS will provide a clear understanding of a company’s business results. There are many reasons why a company’s business might perform differently than its NPS might suggest. Here are some of the common reasons that I’ve seen:
- NPS is not the ultimate question. In many situations, the amounts of promoters and detractors are roughly correlated with customer loyalty and business success, but that’s not always the case. It’s not a universally good metric as it’s not correlated to business success in all situations. For example, NPS may not be at all indicative of business success if customers are trapped because of a high switching cost, limited competition or monopolistic power of the company, unique product or service offerings, etc.
- Comparison NPS trumps absolute NPS. In general, health plans have low NPS scores yet many of them do well financially. Customers may not be likely to recommend their health plan, but if they don’t believe that there are any better options then it will not affect their loyalty.
- B2B roles are under-appreciated. There are different dynamics in B2B situations. If we ask treasury assistants in large companies to provide an NPS for commercial banks, we might believe that it should represent the health of a bank’s business. But what happens if CFOs, who control the banking decisions, give banks a completely different NPS?
- Non-customers are often overlooked. A retailer may have a high NPS, but still lose share if its products and services start appealing to a narrower audience. This type of situation is often missed, because companies tend to get considerably more feedback from existing customers than from prospective non-customers.
- Segmentation can alter the analysis. When an organization looks at its overall NPS, it might miss important trends in different customer groups. What happens if NPS is getting lower for high value customers and getting higher for low value customers? The overall NPS could stay the same or even improve while the company’s results decline.
- Survey design affects results. Many companies have a mismatch between the way they deploy NPS surveys and the insights they attempt to glean from the data. Companies ask the NPS questions at different times and frequencies, which can affect the overall results. If we ask NPS after a customer service event, then the results will likely be different then if we ask it periodically to a random sampling of customers.
The bottom line: NPS can be an effective metric in many situations, but only if used correctly