I would like to take a moment to discuss where we've been with the Net Promoter research, and how it fits with the way companies are using and validating Net Promoter Score (NPS) in their businesses. There have been some critics from various corners of the market research world who are doing a poor job explaining what Net Promoter is about, and we recently received a request in the discussion forum to clarify our position -- especially for many of our community members who have not reviewed the original research.
When Satmetrix (the co-developer of Net Promoter) undertook the challenge of finding the right metric (or metrics) to capture customer loyalty, there were already a myriad of measures being used for that purpose. That lack of standardization diluted the business benefits of customer loyalty programs. In many cases, the numbers being reported were either overly complicated, unbelievable, or not auditable. What's worse, many of these metrics had no proven link to real business outcomes. Then and now, I think most practitioners were looking for the same thing: a metric that would help their organizations focus on the customer. Phrases like "customer centricity" and "cultural transformation" come to mind. But let's be realistic: the focus was not on changing the culture just because it seemed like the right thing to do. Business leaders believed that improved customer focus would contribute to their growth and help them differentiate from competitors.
So the focus of our original research with Fred Reichheld was to find metrics that link what customers say to what they actually do. That meant that we needed to find a loyalty question (or questions) that would consistently link intentions with customer referrals and purchase behavior at the individual level.
Today, I'd like to discuss our first round of Net Promoter research, which targeted customers in six industries. We collected their feedback on a variety of loyalty measures. Six to twelve months later we sent follow-up surveys to these same people to study the linkage between their initial loyalty intentions and their actual behavior. For some of the companies that we studied, we also had the actual purchase histories for customers who had responded. This individual-level analysis proved to be robust in linking the recommend question to actual customer behavior, enabling us to group customers according to their joint loyalty and behavior profiles and create the Net Promoter categorization.
Ultimately, business value is created one customer at a time, so starting with a focus on customer behavior at the individual level is critical to understanding your NPS economics. Some practitioners and observers have focused exclusively on establishing links at the aggregate level -- for entire industries or large companies that offer products and services in many discrete markets. Decomposing those "aggregations" is key to understanding how NPS links to business outcomes for you in each market where your company competes. For a good example of this, check out the Philips case study, which was presented at our London Conference in June. It shows the linkage to growth in a variety of different business units within Philips, each of which has unique competitive dynamics.
Some people ask me whether the recommend question was the strongest predictor 100% of the time when we did the research. The plain answer is no. We found this question to be the first or second correlate to individual customer behavior 80% of the time, as mentioned in our whitepapers about the research and in Fred's writings. Should you bother trying to identify promoters and detractors if you find that the recommend question is not the best fit for your business? I would say yes. As an example, read the Enterprise Rent-a-Car case study in The Ultimate Question. It shows how the business processes of the Net Promoter discipline work for identifying and acting on promoters and detractors, and they happen to use a satisfaction ranking to do this.
While analyzing customer behavior at the individual level was critical to establishing the Net Promoter framework, our long-term goal was to understand how those tendencies linked to profitable growth for companies and their competitors. At the time of the individual-level research, Satmetrix had been tracking a variety of industries using the recommend question, along with many other commonly used loyalty questions. We amassed a large data set (over 150,000 responses) by which to expand the research to a macro-level perspective. We found that Net Promoter demonstrably tracks to growth for most businesses, as explained in The Ultimate Question and other publications.
But if that were all Net Promoter did, it is doubtful that it would have gained its current momentum in the marketplace. While Net promoter is an important indicator of individual customer tendencies and profitable growth, the real advantage comes with the insight it reveals about how to manage the company as a whole and how to connect employees to customers. Let me highlight what I believe to be the key components of this approach:
1) Net Promoter is simple but not simplistic. Net Promoter's advantage is that it is easy for everyone to calculate and communicate, from front-line employees to CEOs. Of course, that doesn't mean you can treat Net Promoter Scores simplistically. Some people assume that once they can calculate their NPS, they are well on their way to becoming a loyalty leader. The truth is, you can't correctly calculate your Net Promoter Score until you truly understand your customer base, including who are the right customers to contact, when to contact them, at which touch points, etc.
2) Net Promoter tracks to growth. Let's not underestimate the value of this core attribute. At the same time, let's not overlook individual customer behavior as the key focal point, especially the value gained by understanding the economics of promoters, passives and detractors. Net Promoter encompasses two key characteristics about your customer: the economic value of a given customer today (as reflected by their individual buying power) as well as their future market worth (including re-purchase referrals to others). We've tracked this finding across multiple industries and can quantify its impact. Your company can do the same. Once you identify the right financial and operational data, you can validate the impact of promoters and detractors -- especially their decisions to spend, renew, and refer. In fact, this is the most powerful information to communicate the potential of NPS to your organizations.
3) Net Promoter is actionable. Companies that understand these economics can quickly reach decisions about whether they are really attaining "good profits," as Fred Reichheld calls them. Success does not simply come from measuring NPS; it comes from taking action (both at the front line and at the executive level) to improve the customer experience in a repeatable way. Net Promoter data is granular, distributed and actionable. Action comes from nurturing promoters, engaging detractors and moving passives into positive territory. This is not a once-a-year activity, but an ongoing dialogue between customers and employees. The ensuing action will permeate your business and focus your attention on nurturing profitable customer relationships.
There are many examples on this website of companies that are seeing positive results after applying Net Promoter in their business. Their successes are attracting more businesses to this revolutionary way of measuring and acting on customer loyalty data. Our ongoing research has validated the effectiveness of Net Promoter -- especially when it is implemented as a total customer program. But don't rely on others to prove the point for you. Test it with your own customers, and follow the path that works for your business.