NPS, the only number to grow is flawed, here’s why_Part 1

As a customer, I am sure, we all have been asked this question a thousand times, How likely are you?to recommend us to your family and friends? My reaction or score to this question has always been dependent on the context I was in when I was asked this. Whatever score I gave has never been a true indicator of my future action because I myself don’t know if I would recommend it or not in the future. This is again dependent on my satisfaction over time using the product or service, which might change the score I gave initially. If there is a reward linked to referring customers, I might refer my friends and family just for the reward even though I might have given a low score or was not really motivated to refer anyone. Either way the NPS score what the business sees is not true or accurate. Yet, companies are obsessed with seeing and knowing how this only number they have been told by the industry and consultants to grow is doing. Moreover, companies also want to know how their NPS score is doing compared to the industry average. When in fact, each company included in the industry average calculation is different from each other from a product and service perspective, the type of customers they attract and the factors that influenced their NPS score. So the question becomes, is NPS even the correct metric to measure? Despite being flawed, why is it followed in the industry and even to compare your NPS with others or industry average valid? What should be the only number to grow?

Before I try to answer these questions, let’s do a quick recap on NPS so that we have the same baseline point. NPS was developed by Fred Reichheld of Bain & Company, Inc., in 2003. The score is based on the response to the question: “What is the likelihood that you would recommend Company X to a friend or colleague?” rated on a 0–10 scale. Since its introduction in Harvard Business Review article,?The One Number You Need to Grow, 18 years ago, NPS, has become a foundational business metric globally.

Net Promoter Score is considered a leading growth indicator across industries. It is a measure of customer sentiment and loyalty that can be benchmarked across competitors in the industry.

In order to calculate NPS, companies ask customers how likely are they to recommend a product to their family or friend on a scale from 0 to 10.

Respondents to the NPS question are then grouped as promoters, passives and detractors based on their ratings to the question:

1. Promoters — those who scored 9–10 are loyal customers who will keep purchasing and will refer the business to others
2. Passives — those who scored 7–8 are satisfied customers, but maybe get swayed to competitors
3. Detractors — those who scored 0–6 are unhappy customers who are likely to damage the brand by negative word-of-mouth

To calculate the NPS you take the percentage of Detractors (0’s through 6’s) and subtract it from the percentage of Promoters (9’s and 10's), leaving out the Passives (7’s and 8's). The product or service can also be given a score based upon the ratio of “promoters” versus “detractors.” If the ratio goes up, it’s presumed that customers are happy and loyal. If the ratio goes down, it is presumed customers are dissatisfied and are likely to say negative or not recommend. NPS can range between -100 (if everyone is a?Detractor) and +100 (if everyone is a?Promoter).

Challenges with Using NPS

The biggest challenge with using NPS as a primary customer experience measurement is that it doesn’t take a lot of other factors into account. It gives an objective measurement outlook for a subjective measurement. Let’s explore some key issues further.

Using NPS to predict future action based on current sentiment

The classic NPS question asks whether you would be willing to recommend a product or service to a friend or colleague, and it is mostly asked right when you have completed a first/most important milestone. Your willingness to advocate a product or service in a future time is being measured based on your response subjective to your sentiment at that moment. In fact the response is an indicator of your perception of the brand, product and service at that time point. Not your satisfaction, advocacy, loyalty or relationship. Your willingness to advocate assumes that you are interested in purchasing the same or similar product again and you are happy with your purchase. It is known that in surveys, people say one thing and do another. Often, the responses are skewed if we feel our behavior is being too closely observed, there is a reward for your response or you are simply happy with the purchase you have completed even though you haven’t had time to use the product or service yet.

Using NPS to measure loyalty

Companies rely heavily on NPS as their metric of loyalty. Loyalty can’t be measured what I say I’ll do in the future vs what i really do that can be observed. That is, did I buy or visit again? Did I buy something else or more premium from you? Did I expand on my relationship with you? How long did I stay and intend to stay? All of this tells about my loyalty to you and it will continue if I am also rewarded for my loyalty. NPS doesn’t touch upon any of this. If I am no longer loyal, it doesn’t mean I will not recommend the product or service to others.

Using NPS without context and not knowing what to fix

When looking at NPS score, you don’t know the context of the respondent when they gave this score. Feedback generally comes from people who are either too angry or too happy. Those who are angry are looking to vent off their anger, are likely to respond more than those who are happy. Among the happy ones, the ones who are too happy will likely respond more than those who are moderately happy. So when NPS surveys are done, you are always at the risk of getting skewed responses, thereby giving a score that is very subjective.

Further, are all the customers responding to this survey the same? No. This factor is not considered at all when NPS is calculated. This means the NPS has a lot of inaccuracy.

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Opinions expressed are solely my own and do not express the views or opinions of my employer.