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Moving Beyond the Net Promoter Score |
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Written by Webmaster
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Wednesday, 11 March 2009 |
By Freshoutsourcing
 Net Promoters
In a 2003 Fred Reichheld claimed in the Harvard Business Review that the Net Promoter Score (NPS) was the single most reliable indicator of a companys ability to grow. Since then its been used by a whole host of organisations whose executives appreciated the idea that a single number could provide such an accurate assessment of the overall status of their company. And, its not difficult to understand why. Busy executives like the simplicity and focus that a single metric can
provide as its:
easy to digest
report on
provides a direct measure of the effectiveness of company initiatives
Single metrics are also a great antidote for the information and data overload that market research agencies, such as ourselves, have been traditionally been guilty of creating. Busy people want a direct answer to what should be a simple question..How is my company doing...?
So, its easy to understand why the net promoter score has been so successful but, is it really an accurate reflection of a companys performance and its ability to
grow revenues? Recent research (see article in the appendix) suggests it isnt but, in all honesty, we Researchers are a bit like Economists - we rarely agree on anything!
Limits of a Single Metric Approach
At the end of the day its probably impossible to say whos right and whos wrong but, as ever, common sense is a great leveller and the enthusiasm with which Net Promoter has been greeted should be a wakeup call for research agencies.
Market Research companies need to understand that executives want a single metric they can use to assess how well the business is performing (although, it needs to be the right number!)
In reality the Net Endorser concept is probably overly simplistic for complex Business to Business (B2B) markets and expecting a single question to accurately reflect how well a business is performing is asking a lot.
Challenges Associated with Single Metric Data
Single metric analysis can work well for commodity driven companies that benefit from relatively straightforward purchasing models within their target markets, e.g. eBay, Costco, Amazon, Wal-Mart and American Express. However, for organisations primarily associated with B2B markets where:
Product and service are closely interlinked
Purchases are made infrequently
Users can be locked in (e.g. software licences or corporate policy)
Comparisons are hard to make due to lack of experience
Then there is a real danger that single metric analysis will fail to paint the whole picture or worse still lull companies into a false sense of security. Its also fair to say that a one-dimensional score fails to provide the detail that companies need to identify problem areas and improve performance - the ultimate aim.
An Alternative Single Metric Approach
Were not, for one minute, suggesting that companies should stop asking the key NPS question How likely would you be to recommend Company X. Like many other research agencies we have been using a question of this type for years and it is a very important indicator of how a company is performing. However, in B2B markets its unlikely to tell the whole story and we suggest focusing on three additional measures but have developed an approach that wraps them up into one single score at the end a sort of Company Health Check index.
The Three Other Measures
Likely Business Retention Levels
In some markets, Software for example, the value of a company is heavily determined by the size of its installed base and the associated level of recurring Service revenues. Net Promoter scores wont necessarily reflect business retention levels as although people might be recommending you like crazy other factors might be eroding the installed base. Continuing with the software analogy: levels of recommendation might be high but, if corporate policy dictates a shift to just one solution throughout
the organisation then theres little even a happy user can do. This isnt just a theoretical example - over the years companies such as SAP have benefited significantly as Finance Directors look to insist on a single solution across a group and its always a real issue during Mergers and Acquisitions (M&A).
Of course word of mouth recommendations and the resulting levels of new business might negate the impact that corporate policy and M&A activity have on business retention levels but the Net Promoter score wont necessarily reflect the real position of the business.
Satisfaction Levels (the early warning indicator)
Although satisfaction levels should ultimately be reflected in the Net Promoter Score (NPS) less people will recommend you if they arent satisfied - our experience in B2B markets suggests that the actual NPS score usually lags behind changes in satisfaction. Intuitively this makes sense.
The decision to recommend or otherwise is invariably based on personal experiences with the company i.e. the more satisfied you are the more likely you are to recommend and so on. No surprises here. However, the critical point is that changes in satisfaction tend to come before changes in the propensity to recommend. So, by measuring satisfaction directly you can identify changes more quickly and accurately and potentially identify a challenge before it becomes a problem.
Net Brand Strength
At Redshift we use Net Brand Strength to measure the extent to which people: identify with, are attached to or are committed to a brand (in this case were using brand to refer to the company, its products and its people). OK so this sounds like something out of a marketing text book but brand strength really does make a difference.
Our studies show that there is a direct relationship between Net Brand Strength and the price that companies can charge for their goods and services i.e. companies with strong brands are able to command comparatively higher prices and yet still retain market share.
Companies with stronger brands are far more likely to be: talked about, sought after or recommended so changes in brand strength will have a direct impact on measures such as endorsement.
In B2B markets supplier selection and risk reduction are close bed fellows. People always used to say that you never got fired for buying IBM and while this might be dated companies and business decision makers are generally risk averse. Net Brand Strength is an excellent measure of the perceived risk associated with a purchase and the stronger the brand the lower the barriers to the purchase.
The above might be something of a truism but the critical point is that just as changes in satisfaction tend to pre-empt changes in recommendation so do changes in brand strength for the reasons cited. So, we recommend clients measure net brand strength to identify changes and challenges as soon as possible.
Pulling it All Together Company Health Check Index
In view of our experiences in B2B markets and clients enthusiasm for single number analysis we have developed something were calling a Company Health Check index. It provides a single metric score using the same methodology as that used to calculate the Net Promoter index but uses 3 additional measures to provide what we believe to be a better Health Check i.e.
1.Endorsement Levels (Equivalent to NPS)
2.Satisfaction Levels
3.Likely Business Retention levels
4.Net Brand Strength
Unfortunately we cant achieve all of this with just the one question we have to use four - but, hopefully it ticks all of the boxes:
You still have a question and a resulting figure that is directly comparable to the Net Promoter Score (NPS) as were using the same methodology but calling it the Net Endorser Score
You have an understanding of the levels of: satisfaction, business retention and brand strength that invariably change before the NPS
You can still focus the business on a single number but one thats based on these four critical measures
What Does the Company Health Check Index Look Like?
Given the enthusiasm for keeping things simple, single number indicators and Executive Dashboards showing Key Performance Indicators (KPIs) we have designed something which does everything on a single slide.
Comparing Results to Real Business KPIs
Although our Company Health Check Index has been designed to work on a standalone basis it can also be used in conjunction with other KPI data that companies might collect and measure:
Value of sales pipeline
Number of business enquiries received
Sales conversion rates
Quarterly revenue totals
Customer queries and complaints received
Quarterly profits etc.
Can all be evaluated against the research data and correlations identified between the trends in real business performance measures and customer feedback. Of course NPS might be the single most reliable indicator of a companys ability to grow but every company is different and a health check gives executives the opportunity to consider that figure while seeing if other indicators are, in fact, better for their own businesses.
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Redshift research is a UK-based market research agency. We design and fulfil both business market research programmes, tailored to the needs of business to business audiences, as well as consumer market research studies. We help business enterprises, public sector and not for profit organisations launch new products, improve customer satisfaction, leverage brand strengths, segment markets, and fine tune their marketing and communications activities.
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Last Updated ( Wednesday, 11 March 2009 )
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