By Larry Freed, President and CEO, ForeSee
Net Promoter Score, commonly referred to as NPS, was first introduced in the Harvard Business Review in a 2003 article, titled: “The One Number You Need to Grow.” It was intended to be a metric for assessing customer loyalty by asking a single question: “How likely are you to recommend my brand?”
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Customers respond on a scale of 0 to 10, and NPS classifies 9s and 10s as promoters, 7s and 8s as passives, and 6s and below as dreaded detractors. Retailers and many other top global brands have adopted NPS over the years because it is simple, and it serves as a proxy for customer satisfaction measurement. But its lack of accuracy may be failing organizations.
The problem is that NPS makes a major assumption — that all people who respond with 0 to 6 are actually brand detractors. Just because you aren’t likely to promote a brand doesn’t mean you’ll detract from it. Because of this, NPS doesn’t accurately capture negative word-of-mouth and it doesn’t differentiate between active and passive word-of mouth.
This problem with NPS is exacerbated because word-of-mouth is more important now than ever. NPS was first introduced more than a decade ago. But now, consumers have much more power — more than they’ve ever had. The barriers that stopped them from changing brands in the past have disappeared, and the rise of social media has magnified the power of their voices. But NPS never evolved to keep up with the changing world.
To accurately capture negative word-of-mouth, you need to ask people directly: “How likely are you to detract from my brand?” Without this second critical question, organizations may be grossly overestimating how many true detractors their brands have. If they’re spending time and money chasing all the detractors that NPS identifies — which many retailers and other brands do — they could be wasting enormous amounts of resources mistakenly trying to convert passive and even loyal customers. While it may seem like a good tactic to attempt to convert as many detractors as possible, that’s only true if you’re targeting true detractors.
ForeSee spent 18 months diving deeper into this topic to develop its Word-of-Mouth Index. We conducted 1.5 million+ surveys asking customers at 300 companies worldwide both questions. We compared the results by looking at the 9s and 10s for both questions, isolating active promoters and detractors, and the results were pretty shocking. NPS overstates detractors by an average of more than 270%. It was slightly less for the retail industry (222%), but still a gross overestimation.
NPS has delivered great value for the last 15 years. It got executives to focus on customer satisfaction via a simple number. When organizations started to base business decisions on detractor metrics, however, a need arose for a more precise analytic measure that addresses the sophistication of customers that can actually help organizations improve bottom-line results. The end goal of ForeSee’s research was to evolve NPS into a more accurate, actionable metric that brands could really use as a tool and not just as a number on a dashboard.
Brands need to reevaluate their tactics for identifying and converting detractors. With today’s more empowered consumers — who are able to broadcast their voice and switch brands instantly with the click of a mouse or the swipe of a mobile screen — it is critical that companies use a loyalty metric that keeps up with the evolving world.
For organizations, it is important to focus on improving positive word-of-mouth, as well as decreasing negative word-of-mouth. To do that successfully, they must measure what’s driving customer experience (website functionality, pricing, customer service, etc.), and use that data to prioritize initiatives that improve customer satisfaction. That’s the Holy Grail for customer experience measurement, and no single question or metric can give you all the data and insight you need.
Larry Freed is President and CEO of ForeSee, a pioneer in customer experience analytics.
