Customer Satisfaction and Net Promoter Score
A recent paper in the Journal of Marketing reports on a study done to examine the Net Promoter Score (NPS) and firm’s revenue growth and found that NPS is not the best measure to predict growth as claimed by its proponents.
NPS methodology recommends conducting the customer satisfaction survey with one question: How likely are you to recommend company or product X to your friend or colleague and the answers are measured on a 10 point scale. People selecting 9 or 10 are called promoters and those selecting between 0-6 are called detractors. The net promoter score is the difference between the two numbers and claims to predict firm growth.
The major issue with NPS is not that it does not predict growth, but the fact is that it is not actionable. NPS does not link to any specific business metrics which the company executive can influence.
As Larry Freed points out:
What you measure will determine what you do
The results of your measurement will determine where you decide to allocate resources. If you’re asking survey questions about the wrong area, then you’re going to invest in improvements to the wrong area without improving what you set out to improve.
Customer satisfaction is a complex metric based on multiple dimensions along which the customer interacts with the company. A carefully designed survey questionnaire based on hypotheses which link to clear business action is the first step towards understanding root causes of customer pain points and identifying actions which will ameliorate them.
Photo credit: Zoom Zoom
I’m seeing NPS used as a substitute for Overall Satisfaction (OSAT). Based on your comments, OSAT falls short in the same way. It is not actionable. Are you suggesting that the best course is to throw out the non-actionable metrics? NPS or OSAT are often used for measuring the success of improvement initiatives. I would suggest that success is best measured by the achievement of overall objectives such as increased sales or decreased churn rather than by a proxy such as NPS or OSAT. Would you agree?
Comment by Matt Chittle — July 6, 2007 @ 2:16 pm
Matt,
Thanks for your comment.
I agree that satisfaction eventually needs to tie to highest level business objectives like revenue increase, reducing operational cost etc. And if it becomes difficult to directly measure results in terms of these highest level metrics, then intermediate operational metrics can also be used (e.g. cart abandonment ratio in e-commerce websites, number of RSS subscribers, first call resolution rate in call centers etc.) to measure success and link to the highest level metrics
Comment by Amaresh — July 9, 2007 @ 8:36 am
I see many people who are responsible for “the customer experience/customer service” searching for a summary indicator. Assuming that increased sales is the objective, the person in charge of customer service has only an indirect impact on sales. If service is bad, sales will be hurt, if service is good, sales may increase.
There are many many variables that affect sales; product, price, promotion, competition and service.
How should customer service be measuring themselves. Is OSAT or NPS the right summary or should they be focused on the operational metrics you suggest such as cart abandonment or first call resolution? Your thoughts?
Best,
Matt
Comment by Matt Chittle — July 9, 2007 @ 8:59 am
The idea is to benchmark the operational metric (say cart abandonment rate) to the highest level metric (in this case revenues). Using that baseline you can focus on the operational metric that can be directly influenced and at the same time understand the impact it will have on the indirect metrics.
In the customer service world, I have seen a company which measures the impact of the call center by operational metrics like first call resolution, cross sell revenues, average handle time etc. and ties back all the metrics to company’s earnings per share. This helps them to guide the investment and trade-off decisions (revenues from a new cross-sell program vs. increase in average handle time).
That being said, primary research (via customer surveys, call monitoring) are very important tools to understand specific customer pain points but overall satisfaction number does not add much value for the executive.
Comment by Amaresh — July 9, 2007 @ 11:52 am
It’s one thing to know your Net Promoter Score, and another thing to do something about it. Net Promoter blogger, Jeanne Bliss, author of Chief Customer Officer, tells you how in these applicable blogs:
Mining the Gold: Listening Hard to “Detractors”
http://netpromoter.typepad.com/jeanne_bliss/2007/07/mining-the-gold.html
We Know Our Net Promoter Score. Now What?
http://netpromoter.typepad.com/jeanne_bliss/2007/05/coming_soon.html
Additionally, for anyone interested in learning about Net Promoter in the real world, check out the Net Promoter Conference blogs (from the London and New York events). Multiple bloggers have written up key takeaways from ~ a dozen sessions on the successes of companies who presented such as T-Mobile, LEGO, HSBC, Schwab, Intuit, Philips, GE, T-Mobile, IBM, and more.
Here’s the link to the most recent conference blog:
http://netpromoter.typepad.com/npc_london_2007/
Comment by Amy Madsen — July 27, 2007 @ 9:33 pm
[…] The Net Promoter Score (NPS) methodology uses a 10 point Likert scale to calculate the all important metric. I am not sure whether any research was done before a 10 point scale was chosen, because the scale certainly can influence the metric. In general, this caused me to wonder how to decide whether a Likert scale survey question should have a 5 or 10 or any other point scale. […]
Pingback by Analytical Engine » Net Promoter Score and Designing Likert Scales — July 28, 2007 @ 11:42 am