NPS Scam? Or Just a Lack of Guidance? How NPS Can Inform Growth:
There has been a paradigm shift in the modern business world, one that increasingly recognizes the undeniable connection between Customer Experience (CX) and profit. Net Promoter Score (NPS) has been a critical tool in supporting that shift. However, recently, The Wall Street Journal released a provocative piece questioning the utility of Net Promoter Score, and the article has generated a lot of support, specifically from Strategy+Business.
What Exactly Is NPS, and Why Does It Create So Much Buzz?
NPS is a commonly-used metric in Customer Research that measures customer loyalty on a 0-10 scale. Have you ever been asked, “How likely would you be to recommend X company?” NPS is actually derived from that question. The score classifies customers into three categories - Detractors (0 through 6), Passives (7 and 8), and Promoters (9 and 10).
Customer referral is a keystone behavior of loyal customers because they are demonstrating their willingness to stand behind your brand and actively seeking opportunities to advocate your company.
Not only is it a keystone behavior but it is also easy to align around as a company. Everyone from front line employees up to the CEO can understand that making sure your customers leave wanting to tell everyone how great you are is important. Even doubters agree that NPS can be a powerful communication tool.
So, Why Is NPS Under Fire?
We have seen NPS provide valuable insights for many of our clients that drive customer-centricity and empower brands to provide the best CX. So why are people saying it is bogus?
The famous economist, Charles Goodhart, said it best when he stated, "When a measure becomes a target, it ceases to be a good measure."
We could not have said it better ourselves. If you use a metric, like NPS, as a target only, your employees will do everything they can to make sure they hit that target, regardless of the consequences. Former Intuit CEO and NPS proponent, Steve Bennett, illustrates this when the WSJ quotes him saying,
This can have unintended consequences, and that’s exactly where the WSJ and Strategy+Business got it right.
It Cannot Be One Question Only
NPS cannot live as a one question survey. In order to truly understand the “why” behind the score, you have to give your customers the opportunity to tell you. With our clients, we include a strong methodology to compliment NPS and let customers communicate what they loved, what they didn’t, and how they think you can improve. Your customers are one of your best sources of innovation, and one question only will not give you all the information you need to act.
Customers Are Not The Only Important Factor - Employees Matter Too
Strategy-Business makes an important point about NPS leaving out Employee Experience (EX). We have seen the same with our clients. When employee engagement is low, customer loyalty is also low. Our research shows that this connection happens 66% of the time. We believe the system works better with a holistic view. Employee NPS - or asking how likely employees would be to recommend your company as a great place to work - makes your insights stronger and more actionable. Employees and customers are two sides of the same coin.
NPS is Not a Revenue, Share of Wallet Magic Bullet
Key performance metrics, such as revenue and customer share of wallet, do not improve just because NPS changes. They are a lag measure, which means they only improve when you use the insights to make meaningful changes and your customers see the results. NPS is a very powerful tool to understand what changes to make and with whom. We have seen countless transformational experiences with our clients, and below is one of our most powerful examples.
Our Case Study: The Power of NPS - Identify, Solve and Act
If we could shout this next statement from the rooftops, we would! NPS is only valuable when you both use it to understand how to drive more value for your customers and make the changes necessary to improve your business.
We see this idea proven every day in our business. For example, one of our clients is a billion-dollar manufacturer with a big distributor network. When they implemented NPS and started receiving poor scores, there was an initial backlash. No one likes being told they are not doing well. But then, something powerful happened. One of the locations with the lowest score really took the data to heart.
They looked at the problems Detractors were having and trained staff to better deal with issues
They saw inconsistencies in the experience Passives were having with their service and changed internal processes to make sure every customer could expect excellent service
And, they listened to Promoters talk about why they loved working with them and gave those insights to every team member - empowering employees to create Promoters in every experience
The whole company was floored when in a few short quarters they shot up from the bottom of the list to some of the highest performers with a huge 23% jump in NPS. The power was not in the score, but rather, it was in their ability to identify the problems and opportunities, create great solutions, and then act.
Growing Your Business with NPS
Building a strong and meaningful connection with the people in your business is how you grow and dominate the market. The companies that use NPS to understand how to drive more value for their customers and employees are the ones who get it. They have seen it, and The Wall Street Journal article highlights this with a quote from Intuit - a strong user of NPS -
“We have not intended to imply that NPS is related to, or a driver of, revenue” said an Intuit spokeswoman, adding that NPS is one of many metrics the company uses.
At PATH, we believe in helping our clients create long-term relationships by bringing their customer and employee data to life. We believe it so much that it is what our name stands for - People Are The How. NPS, combined with other metrics, has been a tremendous tool in this endeavor, and we use it with our clients today.
The proof is in the results. For the same client mentioned above, we helped them use data to build excellent customer experience, and the results followed. They increased their NPS score to a gold standard of 81% and decreased customer complaints by 99%! They grew their business in a mature market and stayed true to the core of who they are as a business, all driven through a culture of customer centricity. NPS, as a system, was a key part of their strategy.
Business is about relationship-building, and NPS can begin that conversation. NPS isn't going anywhere anytime soon, and companies who effectively use NPS and the system behind the score are companies who exceed customer expectations. Peter Drucker, known as the man who invented modern business management, was right when he said, “If you can’t measure it, you can’t improve it.” Let’s just make sure that our focus is on understanding people better and driving more value as opposed to building our processes to hit a metric.