Found at http://sloanreview.mit.edu

Authors: Neil T. Bendle and Charan K. Bagga

Since 2003, the net promoter score (NPS) has become one of the most widely used marketing metrics.

Companies in industries as diverse as telecommunications, banking, and car rental have embraced NPS as a way to monitor their customer service operations.

Consumers answer a simple question (How likely is it that you would recommend X to a friend or colleague?) on a scale from 0 to 10, with 10 being the most positive. Customers who answer 9 or 10 are considered promoters; those who answer 6 or less are rated as detractors.

The score is the percentage of promoters minus the percentage of detractors.Frederick F. Reichheld, the business strategist who pioneered NPS, has argued that NPS is not just a metric but also a system that allows managers to use the scores to shape managerial actions.

1 Advocates explain that the feedback is the source of many potential benefits.

For example, a senior executive we interviewed argued that adopting NPS facilitated cultural shift at his company from one that was highly bureaucratic toward one that was more customer-centric.Should You Use Net Promoter Score?Although the simplicity of net promoter score (NPS) is appealing, the metrichas limited support from academics.One of the strongest selling points of NPS is its simplicity. It’s easy for managers and employees to understand the goal of having more promoters and fewer detractors. However, there are weaknesses in how the theory has actually been presented to managers. In Reichheld’s original article, NPS was described as “the one number you need to know to grow.”

2 It was associated with “profitable growth” (which implies bottom-line growth).

However, the supporting evidence relied on revenue growth (in other words, top-line growth). In another example in the net promoter literature, a customer’s worth to Apple has been described as the customer’s spending, ignoring the costs associated with serving the customer.

3Unfortunately, it’s easy to imagine how to increase the net promoter score while destroying even top-line growth. For instance, in product categories where the demand is relatively inelastic (such as utilities), slashing prices will likely increase the net promoter score because customers will be happier and recommend the company. Yet, under this scenario, revenue (as well as profitability) will decline.Another problem with NPS as a metric is the classification system. The boundaries between scores of 6 and 7 (detractors and passives) and 8 and 9 (passives and promoters) seem somewhat arbitrary and culturally specific. Grouping customers into categories eliminates potentially useful information. For example, a customer who says that the likelihood that he or she will recommend something is 0 is probably a more active detractor than a customer with a rating of 6. By grouping different types of detractors in the same bucket, companies lose the opportunity to explore the differences.Given these problems, it is difficult to justify the theory of the NPS metric over a simple 0 to 10 scale, or to explain why NPS works any better than other metrics that capture different facets of the customer experience. Academics have been slow to embrace NPS, and many have suggested to us that it is overhyped. So far, we have not seen any rigorous studies that would prove to academics’ satisfaction that NPS is superior to other metrics from the family of customer experience measures. Without a compelling theory supporting the superiority of NPS, its value can only be justified on practical grounds. The argument is essentially: “We are not sure exactly why NPS works, but it seems to work, and that’s good enough for us.”Interestingly, more than half of the marketing managers that we surveyed thought there was “strong scientific support for the claim that the NPS metric is more effective than all other customer satisfaction metrics.”However, a rigorous examination of NPS’s effectiveness relative to other customer satisfaction scores failed to confirm its superiority.

4 In our view, advocates for NPS have not sufficiently responded to this and similar criticisms.

5 Reichheld and his coauthor have suggested that criticism of NPS comes from consultants and academics wed to traditional satisfaction measures and dismiss the critics as “net pro-moaners.”

6 Still, the basic criticisms remain inadequately addressed. Many managers use NPS in the belief that it’s based on widely accepted academic research, even though the evidence supporting NPS is actively disputed.One reason for the lack of resolution surrounding NPS is that academics have focused on testing the metric. They have found that it’s much more difficult to test the broader claims of NPS as a system. At the root of the problem is the difficulty of establishing a control group: You can’t have one group of companies that adopts the NPS system and an identical group of companies that doesn’t. Therefore, the question of most interest to managers — “Will implementing the NPS system improve our comp

Read all: Should You Use Net Promoter Score as a Metric?

My point of view: During a pre-merger inititiave I heard about the metric. Having a COPC background i wondered whether one metric would be enough (what some of my opponents claimed). I sticked to many, many metrics and the restructuring was a hell of a job but succesfull. Both of my opponents lost their job and finally the merger resulted in a split-up. Lesson, be simple as possible but never naive and do never underestimate complexity of real world and people behavior.

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