Trevor Reid || MBA-Law Student Blog

The Net Promoter Score or NPS is a particular statistic that some researchers propose can predict whether overall customer loyalty will encourage your business to grow or not. The main idea of NPS is alluringly simple. Take the percentage of customers who are highly likely to recommend you (promoters), subtract those who are disinclined, indifferent, or only somewhat likely to give you good word of mouth (detractors). There you have it: %P - %D = NPS. The prediction is that a higher score allows for better top-line growth.

NPS has been adopted by some large companies including GE and American Express. Smaller firms may be drawn to its low cost and simplicity. It can be adapted to personal networking and even dating. As a way of measuring customer loyalty the NPS falls within the broad realm of marketing and more specifically into the discipline of relationship marketing. Relationship marketers take the view that continual customer satisfaction is more important than the upside or downside of any single transaction.

This makes a lot of common sense and the underlying theory may be strong too. The research behind NPS was first presented by Fred Reichheld in a 2003 ‘Harvard Business Review’ article. He later expanded on the concept in his book ‘The Ultimate Question: Driving Good Profits and True Growth’. On the other hand, some market researchers claim that the correlation between growth and NPS does not hold up over the long run. Also certain markets, like business-to-business service buyers or senior technology executives, seem to respond more accurately when adjustments are made to the basic approach.

In any case, adherents of NPS find that it is a useful indicator and focal point for customer loyalty efforts because it is easier to grasp than the statistical intricacies of other models. An NPS survey is inexpensive and appealing because it asks one straight forward question such as “how likely are you to recommend our work to a friend or colleague?” A short survey like this is quick to tabulate and probably gets a better response rate than lengthy customer satisfaction questionnaires

As Reichheld described in the preface to his book: “The real issue is how a company knows what its customers are feeling and how it can establish accountability for the customer experience. Traditional satisfaction surveys just aren’t up to this job. They ask too many questions and generate too little usable information.” In contrast, the Net Promoter Score is about one question that generates information you can use as soon as you hear the answer.

For further reading:

Keiningham, T.L., Cooil B., Andreassen T. W., & Aksoy, L. (2007). A longitudinal examination of net promoter and firm revenue growth,” Journal of Marketing, vol. 71, no. 3 (July), 39-51.

Reichheld, F. (2003, December). The one number you need to grow. Harvard Business Review, 81(12), 46-54.

Reichheld, F. (2006). The ultimate question : Driving good profits and true growth. Boston: Harvard Business School Press.