Net Promoter Score

If you are a good marketer you've already heard of the Net Promoter Score (NPS).

If you are a very good one, you know what your NPS is. If you have no idea what I am talking about, read the 30 seconds at the bottom, and then meet me at paragraph two.

NPS is a rather bold little calculation. Its inventor, Fred Reichheld, argues that a single question and its resulting score is the only metric you need to measure satisfaction. He also claims a correlation between a high NPS and future revenue growth.

And the metric has taken off. Online forums have sprung up, full of managers keen to discuss it. High-profile chief executives have publicly praised NPS and added it to their management systems. Even finance people have taken note, with several institutional investors asking for the score as part of their due diligence. But two audiences are genuinely unhappy with NPS.

The first is market research firms, which make their money from long-winded analyses of the market that are so complex they require lots of researchers to explain the findings to befuddled clients.

Clearly, one number that your mother-in-law could compute is a direct threat to market researchers and their business. As a result, many have been hell-bent on showing up NPS as being not all that it is cracked up to be. Even Nigel Hollis, one of the biggest and fairest brains at Millward Brown, concluded: 'The jury is still out. We need to see more compelling proof that NPS actually does lead business performance before we adopt it as the sole benchmark of success.'

The group even more appalled by the apparent over-simplicity and over-exposure of NPS are marketing professors - particularly those who study customer satisfaction. Publicly outraged that sloppy statistical methods and clear research bias were being accepted at face value, privately they were probably pissed off that their complex statistical analyses, which have had next to no impact on real marketers, were being superseded by a single score and percentage from an ex-management consultant who did not even have a PhD. Reichheld enraged them further by admitting his lack of interest in statistics. He calls his method 'common sense' and claims the business leaders he targets have 'little interest in advanced statistical methods'.

The top peer-reviewed marketing journals have published a slew of anti-NPS research in recent months. Most notable was the publication in July in The Journal of Marketing of a statistical analysis of Norwegian customer data. The paper, 'A Longitudinal Examination of Net Promoter and Firm Revenue Growth', shows that NPS fares no better than other measures of service satisfaction in predicting business growth. The paper tetchily concludes: 'We find no support for the claim that Net Promoter is the single most reliable indicator of a company's ability to grow.'

Who is right? Usually I conclude that everyone is completely mistaken. But, in this rare case, everyone is right. Market researchers and academics are correct to question the lazy analysis and over-selling of NPS. But I still side with Reichheld. It may not be all it's cracked up to be, but I have seen more non-marketing executives - managers with real power - quote NPS in the past 12 months than all the other marketing concepts put together. This concept is making senior people think about where the money comes from. Not balance sheets, products or sales, but what really drives the business: the customers.

And anything that gets managers to think about customers and their needs is a step in the right direction. Even if that step is a little sloppy and its effectiveness exaggerated.

About the Net Promoter Score

The concept was developed by Fred Reichheld, a consultant, strategist and author on loyalty. His books include The Loyalty Effect, Loyalty Rules! and The Ultimate Question.

Introduced in December 2003, Net Promoter is a metric derived from survey responses to a 'how likely are you to recommend ...' question. Respondents who provide a rating of nine-10 are 'promoters'; those who give ratings of six or lower are 'detractors'. The NPS is found by subtracting the proportion of detractors from the proportion of promoters.

Reichheld's research among 4000 companies showed NPS to be 100% accurate in indicating whether a firm would grow (more consumers championed its service or product) or shrink (more were denigrating it).

NPS has been adopted by companies including Microsoft and American Express; many report their score to investors.