The Evolution of Net Promoter Scores: Advocate Mobilization Scores
Part I: The Strengths and Weaknesses of the Net Promoter Score
I am a big fan of the Net Promoter Score. In my view it is one of the most important business metrics discoveries of the past 100 years, in the same league as Dupont Analysis, Discounted Cash Flow, and Economic Value Added. It has tremendous predictive ability for the future growth and profit of an enterprise, and yet is relatively easy to source and analyze. NPS works because it measures the volume of delighted and angry customers, and these customers have a powerful influence on new customer acquisition and the costs of this acquisition. For many companies, it is the most important cost that they have to manage.
For the uninitiated, NPS measures the difference between the proportion of promoters and detractors in the customer base. Promoters are defined as people that score 9 or 10 in the question below, and detractors are defined as people that score 6 or below:
How likely are you to refer this company to a peer or colleague, on a scale of 0 to 10, 0 meaning “not at all likely” and 10 meaning “highly likely?”
Promoters and detractors work on all phases of the buying cycle, from awareness to renewal, to advocacy, so improving net promotion has an exponential effect on growth and profits. Having a group of unpaid but enthusiastic and impartial “sales reps” – happy customers and advocates – promoting your company’s product does wonders for the top and bottom lines. And having a bunch of vocal boo-birds can be catastrophic, especially in this hyper-connected era.
I’ve witnessed its power up close. As an executive, I mandated the use of NPS as a component of variable compensation, and witnessed dramatic benefits in customer growth and satisfaction. As a strategy consultant at Bain & Company, the firm that invented NPS, I saw compelling evidence from multiple industries that loyalty and promoter leaders are also industry leaders.
NPS has worked for years. It is effective, providing predictive power for company growth and profitability. It is relatively easy to gather the data, and also has been more resistant to gaming than the traditional customer satisfaction surveys – people tend to be more honest as to their willingness to refer as opposed to a more nebulous satisfaction score.
Gaming an NPS System
Predictably, as the metric has skyrocketed in usage, local managers are gaming the system to increase net promoter scores and defeating its usefulness as an analytical and management tool.
Last year I was at a major bank in Shanghai and they had a net promoter “machine” on the counter. I could pick a number between 0 (unhappy face) and 10 (happy face) to indicate how satisfied I was with the transaction. The teller flashed me a flirty smile after I received my cash, motioning for me to give her a 9 or 10 on the machine. She was clearly trying to bias my evaluation. An associate in an NPS implementation company mentioned a similar story of a major chain of car dealers who routinely tell customers to give them a 9 or 10 because “no other score really matters.”
Clearly, NPS gaming works across cultures and industries!
Setting aside gaming for a moment, should we be leaving this crucial metric – one of the best, if not the best, predictor of future growth and profits – to a survey of customers’ subjective predictions of likeliness to refer? Frankly I am surprised that NPS has worked as well as it has, given the flimsiness of the data collection methodology.
We should be measuring actual referral and reference behavior for our customers.
With just a little more effort we can detect what they actually do rather than what they say that they will do.
What do you think? Is it worth the effort to track actual advocate activity? Are you tracking any of this activity at your company?
To be continued in my next post: Measuring Advocate Activity