This post details the ugly truth about Net Promoter Score.

When I speak with businesses about what they’re doing to assess the trust of their key stakeholders (customers, employees, suppliers), I regularly hear Net Promoter Score (NPS) is the feedback mechanism and metric of choice. Perhaps you already use NPS in your business or are thinking of doing so?

NPS was developed by Fred Reichheld, Bain & Company and Satmetrix around 2003. It’s a metric that propounds businesses need only measure a single metric, derived from advocacy scores, in order to predict future success and prosperity.

This has proven to be an attractive and simple message for many businesses as they’ve enlisted NPS as a non-financial metric to try and help them improve performance. It’s also regularly used to monitor executive and other employee performance to calculate bonuses (much to their frustration).

Invariably, though, when I ask NPS users how happy they are with it, I’m met with almost universal feedback that suggests it doesn’t deliver on its much-hyped promise of being the ‘silver bullet’ that will fix their business problems.

This single metric simply doesn’t deliver the insights and actionability many desire, so I’d like to shed some light on what it is and its significant flaws and limitations.

In case you aren’t familiar with NPS, it’s a score based on a single question, “How likely are you to recommend a product to a friend or colleague?” Survey participants respond on an 11-point scale (0 = not likely to recommend and 10 = extremely likely to recommend). Respondents are then categorised – a respondent scoring 9 and 10 is considered a ‘promoter’, 7 to 8 a ‘passive’ and 0 to 6 a ‘detractor’.

According to the guidelines, detractors are assumed to be customers or other stakeholders who are likely to say bad things about your product or service and even discouraging others to use it. Promoters, on the other hand, are assumed to be the ones considered the most likely to spread positive word of mouth (as advocates).

The ‘Net’ in Net Promoter Score is derived by subtracting the percentage of detractors from the percentage of promoters. A resulting negative NPS means you have more detractors than promoters and a positive NPS means there are more promoters (that is, more potential positive word of mouth than negative word of mouth). This approach is ‘one size fits all’ irrespective of the market setting or stakeholder group being assessed.

Net Promoter Score

The attractiveness of NPS lies in its intoxicating simplicity, however, this comes at a very significant cost.

There is well-documented evidence supporting the view that, although NPS by itself can provide some indication of stakeholder sentiment towards a business, it has several serious defects that prevent the formation of meaningful insights. These include:

      • The appropriateness of the score-classes used may provide less insight than alternatives and be less revealing of market shifts over time – this has direct implications for any subsequent action taken by the business.
      • It is unable to distinguish between gaining ‘detractors’ and losing ‘promoters’ (and completely ignores ‘passives’).
      • It can’t directly illuminate the value drivers/causes of the scores and is, therefore, not directly actionable (unless additional data is collected from stakeholders).

While management strives for simplicity, we all know that business is increasingly complex, no matter how attractive and appealing a single metric may appear.

There are other cogent rebuttals of NPS and these can be summarised as follows.

    1. NPS’s claim that all customer satisfaction and loyalty measurements fail to correlate with profits or growth is patently untrue. There are abundant scientific papers linking satisfaction and loyalty to financial outcomes for businesses.
    1. Even if the NPS concept correctly measured a business’s customer loyalty level, it doesn’t give managers a clue as to what they should do next. It is simply a temperature reading. Only by understanding what actually drives customer loyalty can managers effectively prioritise their improvement efforts.
    1. NPS seems to assert that the score is independent of other measures (such as satisfaction and loyalty). It is difficult to understand how these measures aren’t correlated in some way.
    1. Loyal customers don’t always act as advocates for brands, services and companies. So how does NPS work if loyalty isn’t the key driver?
    1. By converting an 11-point scale into a 2-point scale of detractors and promoters (removing the passives altogether), valuable information is lost. The binary scale doubles the margin of error around the net score (promoters minus detractors) and that means that if you want to show an improvement in NPS over time, it takes a sample size that is around twice as big to calculate the difference, otherwise the difference won’t be distinguishable from sampling error. 

Here are some further detailed and compelling reasons to question the utility of NPS to help you manage your business.

NPS Doesn’t Measure Trust

Trust is almost totally derived from your trustworthiness, which is critically assessed by stakeholders based on your ability to deliver (can do), integrity (will do) and humanity (put my best interests first). All three (3) are essential to reach high levels of trustworthiness.

Many CEOs and Boards talk about trusted relationships with their stakeholders and then quote a positive NPS as evidence. But plain and simple, NPS is not a measure of or a surrogate for trust. It’s a measure of potential advocacy. Yes, the two are related but it you’re going to talk to shareholders and clients about ‘trusted relationships’ or being a ‘trusted adviser’ (as many professional services firms do), then you really should directly measure your trust performance.

NPS is one dimensional. If you want to understand how trusting a relationship your stakeholders have with your business, you need to measure trust. As a CEO, you need to understand if your key customers are evangelists who trust you implicitly, or opponents who want to get out of the relationship because levels of trust are so low.

An interesting observation is that almost all major financial institutions, whose behaviours were forensically examined by the Financial Services Royal Commission, used NPS as a KPI (key performance indicator) to assess eligibility for the award of executive bonuses. The low level of trustworthiness of those organisations was self-evident based on the Commission’s findings, despite whatever their NPS scores indicated to the contrary.

If you want to learn more about trustworthiness and trust, please read HEAR, HERE and HERE.

No New Insight, Let Alone Predictive Power

NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. But what is being net-promoted – product, service, company, brand, etc.? Well, it depends on how the survey is worded. If it’s worded as “How likely is it that you would you recommend [Company X] to a friend or colleague?” it boils everything down to the likelihood of word-of-mouth to occur for the company.

But customers buy specific products or services, not businesses. And they generally recommend specific products or services, not businesses. A quick scan of tweets, forum posts, blog entries, or Facebook statuses will show that people talk about and tell others about products or services. Rarely do people recommend entire businesses, unless the business has consistently gotten every dimension of its offering right, which is extremely rare.

NPS doesn’t reveal anything about the business’s product line, product innovations, accuracy of pricing, or operating efficiency, all of which would be more direct and accurate indicators of future sales or growth. For example, even if the business has a high NPS, if it grossly overpriced a particular product, no one would buy that product. What does NPS tell you about a manufacturer versus a retailer versus a utility? Practically nothing that isn’t already obvious. So, NPS can be classified as a ‘it is what it is’ metric. It tells you the obvious, isn’t predictive in any way, and doesn’t answer the ‘so what?’ question.

NPS isn’t even a number that can stand alone because it has no meaning when taken by itself. Everyone asks, what’s a good NPS? Well, there’s no answer because you have to look at NPS scores relative to other NPS scores in the same industry. You can’t compare NPS across industries or product categories because some products simply don’t lend themselves to word-of-mouth, while others could evoke extreme passion and sharing.

NPS also ignores the fact that the voices and reach of promoters or detractors can be drastically different depending on the channels they have at their disposal and choose to use. There may be very vocal detractors who go online and write negative reviews. That would outweigh a non-vocal group of promoters, even if the business had a positive and high NPS.

Based on Bad Calculation

NPS is also based on a seemingly arbitrary 11-point scale (0 to 10), where 0 to 6 are detractors, 7 to 8 are passive, and 9 to 10 are promoters. Why not a symmetrical scale like 0 to 4, 5, and 6 to 10? Or something else entirely? NPS is unipolar in the way the question is phrased ‘How likely are you to recommend?’ while bipolar in how it’s applied – detractors versus promoters.

A 0 to 6 response means ‘not likely at all to recommend,’ which is very different than someone actually detracting or stating negative attributes and why. The application of NPS is inconsistent with the scale used, and almost begs a different scale like -3, -2, -1, 0, +1, +2, +3, which indicates ‘highly likely to recommend against,’ then ‘neutral’ to ‘highly likely to recommend for’, respectively.

Also, and as noted earlier, ‘neutrals’ (those scoring 7 and 8) are totally ignored when calculating NPS. It’s as if those stakeholders don’t even exist and their opinions don’t matter when the business is making important business decisions. If a respondent is likely to fall into this category, why would they want to respond in the first place, knowing their opinion will be ignored?

Not Actionable

Perhaps the strongest criticism I hear from NPS users is that they invariably feel frustrated in not being able to take confident actions on the back of their results because there are no obvious insights to be gained from a single number.

Within the same industry or product vertical, NPS is problematic because there are many possible ways to arrive at the same number. For detractors, passive, and promoters respectively, we can arrive at an NPS of 20 in dozens of ways. A company with a 20 NPS could have 20% promoters, 80% passives, and 0% detractors, while another company with a 20 NPS could have 60%, 0%, and 40% respectively. One could easily argue that the business that had 20% promoters and 0% detractors is very different than the one with a polarised customer base with 60% promoters versus 40% detractors, even though their NPS result is, for all intents and purposes, the same.

More to the point though, NPS is not actionable. What if you had a good one? What does that mean? For example, in the telecommunications industry, an 11% result for one company may be the best of the bunch. Is it the best because of the technology, the service, the wireless service, or the cable? The company is identified but what product or service is actually worth recommending, if any at all? We simply don’t know the ‘So what?’ What if you had a bad NPS? What do you do? Is it a particular underperforming or unprofitable product or service that should be cut from the product mix? Is there a weakness in customer service or operational inefficiency that can be improved?

If a metric is just an ‘it is what it is’ number, has no predictive power, can’t be used alone, and doesn’t give you clues about what to do next, you probably should consider discarding it in your business. It’s synonymous with less than useful.

You will note from these observations that the efficacy and utility of the NPS metric is under serious question. Perhaps it has been oversold to and misunderstood by the executives of many businesses. Maybe they’ve simply jumped onboard the NPS bandwagon because others in their industry have already done so and they want to benchmark their performance.

It’s never a good idea to put all your measurement eggs in one basket. Consider multiple measures, including those that directly assess trustworthiness and stakeholder trust which are essential to the success of any business. They should certainly rank higher than any measure of advocacy, like NPS.

Risk is a function of the quality of information at your disposal to make the best decisions. So, if you are currently totally reliant on NPS (or thinking about it) as a standalone metric that underpins your stakeholder management decisions, I recommend you seriously re-think that approach and look for additional metrics that can provide you with greater surety and confidence to underpin your decision-making.

Regardless of whether or not you’re using NPS, I’d encourage you to be clear about the decisions you’re making and gather the best evidence you can in service of making those decisions, not just the evidence that’s most convenient.

What do you think?

Trust is the basis for all connection with others. In an organisational context, it is an ongoing relationship between an entity and its key stakeholders such as customers, employees, suppliers and investors. When performed with the right intent and a high degree of competence, your organisation’s actions can earn trust with these groups.

Trust is a strong differentiator for any organisation and a dominant driver of future business profit and growth. When you put trust at the forefront of your purpose, strategy, and execution, your stakeholders are more likely to trust you.

We have the expertise and services that will help you make more confident decisions about the future of your stakeholder relationships:

      • Trustgenie makes trust tangible by helping our clients measure, manage, and maximise trust at every opportunity.
      • MyNextAdvice enables advice businesses to measure and understand the strength of their relationships and take concrete action to resolve performance issues and boost the bottom line.

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