Some months ago I wrote about how The Killer Customer Services or Loyalty Metric does not exist. In that post I provided an example of my own experience that it is not the metric that will improve the performance of the company, but how it is applied and how it is fully embraced in the company strategy. This example was about Customer Satisfaction (CSAT).
Net Promoter Score, like Customer Satisfaction, is not a killer metric
Another metric that has been presented as a Killer Metric is Net Promoter Score (NPS). Over the past months I’ve been involved in several discussion on NPS , which I briefly touched upon at the referred post. There has been, and still is, a fierce discussion on the validity of NPS with regard to its financial performance or company growth predictive capabilities. One of the better publications, from my point of view, is this one from MIT Sloan (PDF). For a good overview of pro’s and con’s take a look here.
Personally I do not take for granted any metric, let alone a metric like NPS that has been marketed like it is the silver bullet for businesses. The Customer Experience is not something one can take lightly nor are Customers. They are both way more complex than can be captured through measurement of one question (and an open feedback-question) that aims only to capture how many Customers would be willing to promote your company or product.
Loyalty is a reward from Customers
Most businesses seem to agree that (sustainable) growth and financial performance improvement is highly linked to high Customer Retention and Customer Lifetime Value. I also believe that most businesses, researchers, consultants and (marketing) scientists agree that Customer Loyalty is related to the Customer Experience. I believe Loyalty should be regarded as a reward from Customers to the company providing a great Customer Experience.
Maybe provoked by the fierce way NPS advocates approach the discussion and defend their positions, I developed an aversion to the metric. I still believe that a more profound measurement framework that focuses on measuring Customer (desired) Outcomes and Value Co-creation, and not Customer semantics, is a more powerful toolbox.
Zappos.com and a Customer Experience that makes the difference
Nevertheless I also have to acknowledge that there are some great examples of companies that are successful and that have great Net Promoter Scores. In itself not a surprise, it is also likely that there are companies with high Net Promoter Scores and zero or very limited growth rates (I’m not aiming at the credit-crunch here). Just like there are companies with high CSAT and poor financial results. One example of the application of NPS I found has caught my attention: Zappos.com (recently sold to Amazon.com). Zappos.com is known for its great customer centric culture, wowing customer service and sustainable growth. Zappos.com is maybe The Brand Icon of how it should be done. This video (featuring Zappos.com CEO Tony Hsieh) provides some insight in how they do it:
It is not measuring NPS that relates to the success, it is the other way around
The success of a clearly defined, and well executed strategy aimed at increasing positive Word of Mouth through “wowing” Customer Experiences, can be measured through NPS. The Key-differentiator is not the measurement, it is the strategy and the alignment of companies resources, culture and true understanding of the Customer Experiences that matter, which result in high NPS scores.
Let me try and explain through a quote from Graham Hill:
There is absolutely NO POINT in measuring something if doing so doesn’t allow you to change the system through management action. These are often different measures to those typically measured by management.
As the video shows, Zappos.com understands their Customers and the Outcomes they desire. Zappos.com knows how to leverage this knowledge and understanding. They are measuring far more elements of the Customer Experience than NPS. Net Promoter Score for Zappos.com is an outcome of management action. I even think they are able to predict their next months Net Promoter Score because they know what Experiences their Customers had.
Did NPS do that for them? I doubt it. It is their focused and well executed strategy in combination with a balanced measurement framework.
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PatriceF
July 27, 2009
Dear Wim, I have followed your thoughts on NPS over the last months.
I am glad you value NPS as a simple metric within a bigger set of metrics. Having used it at Center Parcs, I still perceive NPS as an effective but limited metric. Yes, there is no such thing as a single action directly leading to a positive NPS. Yes, NPS doesn’t deliver anything but an insight/metric.
The outcome of a set of mgt. actions on various customer experience domains within your organisation is taken into 1 metric. The limited NPS value is see is that it gives you the likeability that your customer experience will be shared.
Wim Rampen
July 27, 2009
Hi Patrice,
Thanx for dropping in. You and I share a Center Parcs history. Mine was pre-NPS, so I cannot judge how they work that. Maybe you could share some experiences?
It remains to be seen if I value NPS as a metric though. In this specific Zappos.com case it seems to work, since the main strategy of Zappos.com is to generate positive WOM, and likelyhood of WOM is what NPS measures. So I value the example in its specific circumstances. Job well done, so to say.
And (to avoid “but”) Zappos.com would probably also score great points on other metrics like CSAT or Customer Effort Score.
I think, and I know that Zappos understands this too, it is far more important to understand all levers there are to enhance or improve the Customer Experience.
As I stated in the first part of the post: Loyalty (including WOM) is a reward for providing great Customer Experiences. It is not the other way around. You can measure how many rewards you get, but that won’t tell you how to get more.
Thanks again and: would you consider joining the Customer Experience Value Co-creation Dashboard 2.0 Community? You can find a link in the post or at the top right corner of my blog.
Wim
Ajay Kapoor
July 28, 2009
I think you hit the nail on the head. The interesting thing about NPS (or any metric) is not what the value is, but what you did to accomplish it and what you can do to positively change it.
A metric is just a thermometer, but the doctor and the patient have to do lots of things to keep the patient healthy. The value is not in the thermometer, but in what it is telling you. Similarly, NPS is just a measure and maybe it is a good measure, but it is only describing behavior driven by actions and reactions taken by a company.
If you don’t have a strategy to affect your customer experience, there is really no point in measuring NPS anyway.
Wim Rampen
July 28, 2009
Hello Ajay,
Thanks for your comment and the compliment. In general I actually think NPS is not a good metric, because it measures Intentions, not results.
Please read my reply-comment to Esteban Kolsky and Piplzchoice for an explanation why I think this does not add value (for company nor Customer).
Hope to see you too at the Customer Experience Value Co-creation Dashboard 2.0 community (link to that can be found in top right corner of my blog-site).
Thx
Esteban Kolsky
July 28, 2009
Very well balanced view of NPS. I admire that.
I think that NPS is not worth the paper it is printed in, as the only result it has is to divert management from the objective by putting (yet another) single-metric bogus goal in their sight. As long as they continue to move towards NPS supremacy, they won’t pay attention to what really needs work and should be done.
Least Fred and friends believe it have something against them, my rant applies to CSAT as well. Same thing with ANY other methodology or measurement that tries to boil down the ocean into a single metric.
Here is the thing about what you are talking about from my perspective: it is about measuring in detail effctiveness of each interaction component, collecting feedback, and acting on it. If you do that, any measure you use CSAT or NPS or whatever will give you good results. It is not as a result those methodologies, but you are already doing a good job — right? that counts for something with customers — right?
Any way, I think you are doing a superb job of being balanced and controlled, which I cannot usually do when dealing with CSAT, Loyalty,or NPS.
Wim Rampen
July 28, 2009
Thanks for the compliment Esteban.
I may express myself a little more balanced, in the end we are both on the same page with regard to single metrics.
I would like to add one more component to the conversation:
NPS is claimed to be a predictor of growth and profitability. I say this is nonsense. Your customers might say they are satisfied or have the intention to repurchase. They just won’t tell you under which conditions they will do this. E.g: once competition finds a way to beat you, once you did one price increase too many, once one really important experience goes bad or the economy falls behind, their expressed satisfaction or intentions will be worthless.
Therefor I would never bet on NPS or any other Single use metric to have predictive powers.
@piplzchoice
July 28, 2009
I am not in disagreement with Esteban and Wim’s point of view. I just think (to avoid “but” :0) that it is an infamous chicken/egg discussion because a fanatical commitment to provide excellent Customer Experience, very likely will produce improved customer satisfaction scores, regardless of methodology. The key is an action, not methodology. The methodology of analysis can be very helpful to discover and focus on the most effective action. Alternatively, it can be very useful to validate whether the action taken produces the desired results.
Wim Rampen
July 28, 2009
Thanks for stopping by and taking the time to write your comment!
I thought of chicken-egg too.. My take: it’s always the chicken that produces the egg..
Meaning:
The company produces great experiences resulting in value co-creation. Customers do not value loyalty, companies should not value loyalty intentions (as NPS measures), but loyalty actions. Customers value great experiences, so that’s what companies should focus their efforts (and actionable metrics) on.
Intentions are only of value if nothing else changes. The world is changing every hour, so intentions are worth (next to) nothing.
Just take a look at yourself: how often did you have the intention to repurchase a product and how often did you not do it, because a more appealing offer (or experience) came along?
And: How often did somebody make you a promise (the highest possible intention) and how often did they not keep it.
Worse even: how often did you make a promise to yourself (with all the best intentions), only to find out later you didn’t keep yourself to that promise…
Human intentions are really not worth a lot.. What does that mean for intention-measurement?
Esteban Kolsky
July 29, 2009
Wim and Gregory,
There are two things still bugging me about the above exchange (I took time to re-read, so I would not over-react).
1. the purported prediction abilities of NPS – hogwash (better words would not be allowed under any filter). Seriously? Management buys that because they want to, but there is no possible way to predict future behavior from customers (most of whom are as loyal as a dog — that is until a new alpha dog comes into the fray). Loyalty, Satisfaction predict absolutely nothing! Period. They can be, as you both say, used to create post-execution hindsight (yes, we could predict before what happened thanks to NPS – but I can see the relationship now that is has passed).
2. value co-creation. I will further this debate, been thinking about it for some time now, to the D20 group – alas, I don’t see how value co-creation is more than another management fad. Sorry, my opinion – I know — however, I can see the value being created for both parties in a completed transaction (cash for product, satisfaction for solution, etc.). What I cannot see is how you can harmonize / synchronize customers and companies (in real life, not on paper) to think about the exact same thing at the same time so they can work on c0-creating value. Customers only think about service before they receive it — never after (there was some research done that associated this to loyalty – sorry, I am not like Graham and don’t have it handy :)) which means that unless you get customers at the time they require service (which is not a good time to ask them to co-create a process or improve an experience), you are going to have the same problem with that as you do with loyalty and CSAT – time-sensitive and not retroactive.
Anyways, as I said I am taking this to the other place… but wanted to add to the discussion here as well.
Carry on, nothing to comment on here :)
@piplzchoice
July 29, 2009
I feel that I stepped on a minefield :0). Let me point out that while the customers are not particularly loyal and may not actually purchase again, the positive comments, reviews and recommendations do produce additional sales. I would like to quote my friend Peter Auditore – “Remember that nothing has really changed in the social dynamics of customers, other than the social media tsunami. In the good customer and bad customer experience ratio and model of predictivity: prevailing rule number one, the one customer that has a bad experience will tell ten others, vs. the one good customer only tells on two. The only thing that has changed today is that thanks to social media, they can now tell hundreds vs. ten and now they can do it in seconds.”
Esteban Kolsky
July 29, 2009
The issue here is not related to social media (although I agree with your statement about it).
The issue is that loyalty cannot be measured. Period. Heck, you can’t even measure how many people they tell (good or bad) or whether they do it or not — that statement may just be another factoid used to put fear into management in regards to what customers MAY do (seriously, just think about yourself — how many times you had awesome experiences and did not tell 10 people — even one sometimes, and the reverse is true). In all honesty, customers will do whatever they want to do – recommend you or not, does not matter to them (there is no value or benefit to them, really)
Either way, customers cannot complain if you deliver effective interactions every time. Focus on what you do for them (and with them) each time, then NPS and others will continue to be used as rear-view metrics and management will continue to congratulate themselves about how great they are for using NPS. The true is not in the metrics, it is in the delivery.
That was my point all along. Don’t want to sound like an NPS-hater, but I think that the coming of all these labeled-metrics are actually hurting us more and more as they are being adopted in detriment to the true delivery — which is what (as I said before) matters.
Rokapchen
July 30, 2009
Esteban is my new favorite friend.
NPS is like a heartbeat — if you’re alive you have one; if you’re dead you don’t.
It’s flawed from the premise upon which it’s built — forcing a consumer to align a complex answer into a simple one. It fails to recognize that a relationship is a collective of any number of interactions: some good, some bad. The real value is in the individual interactions — which NPS does not measure.
Aside from that, all measures must be actionable. NPS tells you absolutely nothing of value to act upon.
Wim Rampen
July 30, 2009
Amen to that. Thanx for your support Paula!
Bob Thompson
August 4, 2009
There are pros and cons to NPS. Trying to take a balanced view of what can be a heated discussion, I’ve interviewed numerous proponents and critics over the past three years.
On the plus side, despite some technical flaws, NPS has given CxOs a common way to measure and talk about loyalty, both between departments and between companies. I think Reichheld was right in that loyalty researchers tend to make this subject so complicated that executives throw up their hands. NPS has given them something they can understand and use.
Of course, the fact that a metric is easy to understand and popular doesn’t mean it’s valid. While it may be “intuitively” obvious that willingness to recommend (WTR) — the foundation for NPS — is a good loyalty indicator and predictor of business growth, that’s not always the case. I’ve interviewed companies that found WTR wasn’t at all helpful, and in fact if blindly applied could lead to bad decisions.
In my last round of interviews, conducted for a “voice of customer” article I wrote earlier this year, I did not find a single example of a company implementing the NPS method literally. Instead, what appears to be happening is that NPS is used one of several metrics, and then provided to CxOs to give them something they understand. Meanwhile, those managing loyalty (and often with misgivings about NPS) include other questions to make sure they haven’t missed something, and to learn what needs to be fixed.
One growing tend is the use of text analytics. It certainly does help to shorten long surveys if you can automatically analyze verbatim comments.
Anyway, despite shortfalls it appears that in the real world NPS is being implemented as one of several metrics. So executives get what they need, but the company doesn’t “bet the farm” on any one metric.
My personal view is that NPS is perfectly fine provided that it is validated for an individual company with their data. I think getting the C-suite executives interested in customer loyalty a Good Thing. But I don’t advocate blindly adopting NPS just because someone wrote a book or “everyone is doing it.”
Further reading:
http://www.customerthink.com/article/can_you_hear_me_now_top_five_voice_of_customer_pitfalls
http://www.customerthink.com/article/ultimate_loyalty_metric_grow_your_business
Wim Rampen
August 5, 2009
Hello Bob,
Thanks for sharing your views and experiences.
Just today I was present at a presentation of a serious player in the Dutch automotive industry (B2C & B2B) who did exactly what you described. They have a great Customer Experience Feedback-management approach deployed, that touched on every part of the Customer Experience, driving the company to understand and improve the customer experiences that matter.
After collecting the feedback (continuously and as soon as possible after the experience) and distributing it in full detail to the entire organization (even to local store, department and employee level.. with care I must add) they translate it into an index which is then translated into an NPScore. This NPS (which is obviously not the way it was designed to be) is presented to the Executive Board each month.
My take: NPS is not driving organizations to become more customer focused. It is the Customer driven organization using NPS to get C-level attention..
If it works that way.. why not ;-)
Thanks again for your contribution to my post.
Esteban Kolsky
August 5, 2009
Wim,
I half-agree with what you said. I think the way you describe it is possibly the best way to refer to NPS – an executive dashboard metric.
Problem is that the entire process of distributing feedback, using it for planning, closing the loop, etc. you describe is hardly the way it is used in corporations.
In most places NPS is replacing CSAT as “the” metric that executives use to manage the operations. It simply changed the label, but not the attitude.
I have no problem in using NPS (or any other index as you described implemented) as an executive-dashboard metric. I have big problems with using it in lieu of all other work in feedback
Rokapchen
August 5, 2009
And when you spend all your time satisfying the executives — you end up like GM.
Esteban Kolsky
August 5, 2009
fired? then NPS accomplishes something useful…
Ludo Raedts
December 18, 2009
Hi Wim,
you say: ” I believe Loyalty should be regarded as a reward from Customers to the company providing a great Customer Experience.”
But sadly enough many customers are loyal because they are afraid to switch companies.
I think that loalty should be regarded as a reward but it can’t. Companies with bad service (power companies, life-insurance (source: accenture report on service 2009) are companies where it is hard to churn for customers.
So, I am with you that NPS is not the holy grail, but it is a way to get companies moving and to get them to talk about wat customers want/feel/experience. And that is a big win compared to the CSAT.
If we make it too complicated the boardroom will never understand it and will keep on making decissions on the wrong KPI’s.
Wim Rampen
December 18, 2009
Hi Ludo,
I fully agree that lots of Customers are forced into loyalty. I hope too that Companies start to understand that this is not loyalty and that they can get much bigger rewards if they make it worthwhile for Customers to stay. Providing good Customer experiences is the way to go.
In the end this results in Customers stay longer, repurchase more often, buy more products/services from the company, and yes, also in recommending the product to their friends/peers etc.
This also makes clear why NPS is not the right metric. There is much more to loyalty than recommendation. Let alone much more than the intention to recommend.
There is nothing wrong with asking the NPS question, but we should not underestimate the C-levels. Generally they are pretty smart and well educated people that want to understand how Customers think and act. They also want to know why. This can not be obtained by one question and an open feedback-box.
What message are we giving if we tell them that the success of the company depends on the intention that people have to recommend us? How about asking if they actually did recommend the product/company? How about measuring if that so-called promotor did actually stay longer as a Customer (let’s say 6 months after asking the question?). How about measuring if they actually buy more (often) and how this differs from non-promoters. How about measuring if new Customers came in via recommendation? Is this actually your growth-motor? Is this improving with an improving NPS-score? Is this declining with a declining NPS-score?
Even if you know all this, do you understand why? what triggers this Customer behavior? Do you know which buttons to push?
And, is it not the case, too often, that the C-level only gets to hear the good stories and not the bad ones? Are we not too often looking to prove what we want proved and not trying to find real answers to the why-question? Are we not too often measuring what we can measure easily and explain easily, just because we ourselves do not understand what really drives success?
Providing great Customer experiences depends on understanding what drives value-creation for your Customer. It is about understanding Customers’ needs and how well you are meeting those needs. This is what you need to measure at least. If your only Customer metric is NPS you are measuring the inside-out way. Of course you take some feedback too, but the number that is made important is about you, not your Customer.
I can go on like this for some time ;-) But I guess you understand where I come from.
Any more thoughts?
Wim Krol
September 16, 2010
I’m impressed by the different perspectives and the depth of your arguments. Still I’d like to add something. The interesting thing of NPS versus CSAT to me is that NPS clearly accepts the customer as a Social Customer. Don’t tell me what you think of me but what you’re telling others about me. From this perspective there should be some common ground between Social Customer and NPS advocates. I’d like to see how this can be brought further. Despite the misgivings that some of you highlight.
Wim Rampen
September 16, 2010
Hi Wim,
Thx for leaving your comment here :)
I’m not against measuring NPS, I just do not like the way it presented as a silver bullit, not do I like the fact that it asks for intentions etc etc.. (you probably read most of the comments too, and get my drift)..
Nevertheless I think you’re right it’s great to understand what Customers are telling others, although you have the internet now to find that out, don’t you?
I furthermore think it makes sense to measure something like NPS as well as asking Customers if they ever did recommend you, if only because the intention is worth very little without the action, imho.
I agree with you, we should probably see more cases and approaches evolve over time. Did you already see the approach by Rijn Vogelaar on Superpromoters? I think that’s an interesting approach too..
The judges are still out.. and from what I’m seeing, they all recognize that word-of-mouth is important, but it requires more than 1 single question, to understand what will make your Customers recommend you..
Thx again for engaging here. Look forward to meeting you (again) & maybe discuss your experience in real life?
All the best,
Wim
Michael Lowenstein
February 17, 2011
Wim -
Many of our clients use NPS measurements. Since we find that endeavoring to move senior executives away from a metric which appears elegant and simple – though we agree on the metric’s many flaws and shortcomings – is a challenge, our approach has been to embed the measure in an advocacy research framework which provides much more correlation to actual desired customer outcomes. In my forthcoming book, The Customer Advocate and The Customer Saboteur, I’ve devoted an entire chapter to the recommendation metric, so I fully appreciate, and generally concur with, your perspective.
Advocacy is a far more powerful way to understand and optimize custoer behavior. It takes into account the real-world impact of word of mouth on customer decision-making and the emotional and relationship effect of brand impression/passion and choice. It is based on the latest thinking from major consulting companies and the world of academic research. We have conducted these studies worldwide, in many industries, with excellent results.
Regards.
Michael Lowenstein, Ph.D., CMC
Executive Vice President
Market Probe
Wim Rampen
February 17, 2011
Thx Michael for taking the time to read & comment!
Like you I have accepted that NPS, however flawed as the number one metric, is part of our lives. I even applaud companies who start working with it as part of a broader and deeper measurement framework.
I’m still not sure if advocacy is the better way of trying to understand customer behavior. Advocacy is, in the first place, something companies want (or need), not Customers. I think it is difficult to explain customer behavior from something a company wants, because usually Customer’s behavior is not aimed at pleasing the company.. it is aimed at pleasing themselves.. Thus, if you want to understand their behavior, you should study on what they want, and what they need to do to get it..
My bet is, if you do that better then anyone else, they will tell their friends about you.. But that’s just an assumption you need to prove in the end too!
Jean Letourneau
September 12, 2011
Hi Wim, NPS like any other indicators has not value if static. What makes this the most powerful tool is the other 2-3 questions that come along and what you do with the information that you get out of it. When this is done by knowledgeable people, well segmented with dynamic use of feedback in closed-loop management collaboration with your most valuable customers, I have never seen anything more powerful.
For companies to create value, business models and value propositions must be dynamic , change with simple innovations and built in collaboration with your most valuable customers. NPS helps you do that!
The real flaw behind the NPS is happening when people don’t know what they are talking about and trying to show they are expert.
In our company, we are using NPS along with many others tools and NPS has more than proven its value.
A great Canadian bank, http://www.td.com, is using NPS has a key leading indicator for the last few years and the results have been phenomenal. You will find lots of info if you google TD Bank And NPS and will find lots also in the Investors section.
Have a great evening,
Jean