In a new article published by the American Marketing Association's Journal of Marketing, authored by loyalty experts Timothy Keiningham, Bruce Cooil, Tor Wallin Andreassen and Lerzan Aksoy, there is fresh material for the growing debate surrounding the idea that the Net Promoter Score (NPS) is the only metric necessary to predict a company's ability to grow.
Many major corporations have already adopted NPS as a measure of their customers' loyalty, as noted loyalty expert Frederick Reichheld has advocated the metric as being the single most reliable indicator of firm growth, compared to other loyalty metrics such as customer satisfaction and retention. Recently, however, there has been an increasing amount of debate - and indeed entire conferences - about whether or not NPS is a superior metric, or simply one of a collection of useful metrics.
What is NPS, and how does it work?
Most of us became aware of Net Promoter after the release of a 2003 Harvard Business Review article entitled 'The One Number You Need to Grow'. The general idea is that measurement of customer satisfaction and customer retention does not really help companies grow. Rather, word of mouth (WOM) is the key metric linked to growth.
To calculate NPS is actually very simple: A consumer survey asks people to rate (up to 10) their likelihood of recommending the company. The proportion of respondents who rate the company at 6 or less (known as "detractors") is subtracted from the proportion who rate the company at 9 or 10 (known as "promoters"), and the difference is the Net Promoter Score.
Support questioned
The authors of the article, entitled 'A Longitudinal Examination of Net Promoter and Firm Revenue Growth', used longitudinal data from 21 companies and 15,500+ interviews from the Norwegian Customer Satisfaction Barometer to try to replicate the analyses used in previous Net Promoter research. They also compared Reichheld and his colleagues' findings with the American Customer Satisfaction Index (ACSI).
But, using industries cited as exemplars of the NPS metric, the authors say that their own research failed to confirm Reichheld's assertions regarding the superiority of NPS compared to other measures employed in those industries.
The new study's objective
According to the authors, the main purpose of the new study was to re-examine the previous research and findings regarding NPS (published by Reichheld in 2003 and Satmetrix in 2004). In particular, they have attempted to replicate the earlier findings using a methodology that corresponds to that which Reichheld and Satmetrix originally used.
However, because no longitudinal, peer-reviewed, cross-industry examinations have yet been conducted specifically on the Net Promoter metric, the authors decided to avoid theory-based hypotheses and practically test the overarching claim regarding Net Promoter - that it is the "single most reliable indicator of a company's ability to grow" (as cited on the Net Promoter web site in 2006).
Full article download
The full article has been made available for free download by the American Marketing Association - click here (PDF document, no registration requirements).
Timothy Keiningham is Senior Vice President and Head of Consulting for IPSOS Loyalty. Bruce Cooil is Professor of Management for the Owen Graduate School of Management at Vanderbilt University. Tor Wallin Andreassen is Professor of Marketing for the Department of Marketing at the Norwegian School of Management. Lerzan Aksoy is the Assistant Professor of Marketing for the College of Administrative Sciences and Economics at Koc University in Turkey. To read and contribute to reader and author dialogue on the Journal of Marketing, visit the Journal of Marketing's JM Blog.
For additional information:
· Visit the AMA at http://www.marketingpower.com
· Visit JM Blog at http://www.marketingpower.com/jmblog
· Visit Ipsos Loyalty at http://www.ipsosloyalty.com
· Visit NetPromoter at http://www.netpromoter.com
· Visit Bain & Company at http://www.bain.com
· Visit Satmetrix at http://www.satmetrix.com