Consumer Behavior: Building Marketing Strategy 13th Edition by Delbert Hawkins, David Mothersbaugh

Exercise 12

Do You Know Your Net Promoter Score
Companies are always looking for better ways to measure true attitudinal loyalty. A recent approach that has garnered considerable interest is called the net promoter score (NPS). It might surprise you to find that NPS does not measure attitudinal loyalty through satisfaction scores or through some direct loyalty measure. 72 Instead, it is an indirect measure based on WOM. The technique is based on the following question:
"How likely is it that you would recommend (company X) to a friend or colleague "

Three categories of consumers are created based on their answers to this question, as follows:
Promoters: score 9 or 10
Passively Satisfied: score 7 or 8
Detractors: score 0 to 6
NPS is then calculated by subtracting the proportion of a firm's customers who are detractors from the proportion who are promoters. Passively satisfied customers are seen as essentially neutral in a way that makes them unlikely to engage in any proactive behavior regarding the company, either positive or negative. So, a company with 60 percent promoters, 30 percent passively satisfied, and 10 percent detractors would have an NPS of 50 (= 60% promoters - 10% detractors). Thus, the NPS measures the percentage of a firm's customer base left after subtracting out the firm's detractors.
Several points about NPS are worth noting.
1. Higher NPS scores, in many industries, are strongly related to positive firm growth. That is, if a firm's NPS score is going up (growth in promoters relative to detractors), then future growth in revenues is likely. This makes sense when you consider how powerful and trusted WOM is as a source of consumer information and as a basis for consumer choice.
2. NPS, although based on a WOM question, appears to tap into attitudinal loyalty because recommending to a friend or colleague involves social risk and requires proactive behavior on the part of the firm. Such risk taking and effort on behalf of a brand would seem most likely for a consumer who is highly committed to that brand.
3. NPS is very simple compared to many satisfaction and loyalty questionnaires that can involve dozens of questions.
NPS is not perfect (doesn't work well in all industries) and is not the only measure out there (other measures exist that are highly correlated with a firm's financial performance). However, the simplicity of NPS and its strong relationship with growth have made it popular with companies such as GE, Intuit, and American Express. The simplicity of NPS can also be a weakness when used inappropriately, and care in its use is important. NPS is a barometer of what's going on with the company. Measuring NPS is useless unless it aids change management at all levels of the organization to align firm and employee actions with customer feedback. As one expert notes:
If we're going to act, we need more than a number. [Consumer] comments are essential, with driver analysis the next step. What do [consumers] comment about What leads to being a promoter To a detractor And what will get passives off the fence
Therefore, companies who use NPS often recommend supplementing the "recommend" question with questions that get at underlying reasons for the score. One company follows the "recommend" question with an open-end question that asks, "What is your primary reason for your rating [on the recommend question] " Such an approach is still quite simple and yet provides the basis for marketing strategies to convert passively satisfied and detractor customers into promoters.
When might NPS not be a good predictor of firm growth