Weighing in on Net Promoter

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Seeking Higher ROI? Base Strategy on Customer Equity

Loyalty guru Fred Reichheld has proposed a number called the Net Promoter Score that can be used to measure the loyalty of a company's customers. This simple ad-hoc approach takes the responses to a firm's willingness-to-recommend question, typically measured on a zero-to-10 scale, and says nines and 10s are promoters, sevens and eights are neutrals, and the rest are detractors. By subtracting the number of detractors from the number of promoters, the firm can calculate net promoters.
Loyalty guru Fred Reichheld
Loyalty guru Fred Reichheld

It has appeal because it is simple and because Mr. Reichheld claims it is the by far the most effective metric for predicting future growth. The method has been written up in an article in the Harvard Business Review and in a book, and has been applied at leading companies, including General Electric. All of this is positive; it gets top managers thinking about customer loyalty.

But what if top management has already realized that customer loyalty is important? Does Net Promoter really live up to its claims? No.

No advantage
Researchers have rigorously evaluated the measure's ability to predict future growth. One study, published by Neil Morgan and Lopo Leotto Rego in Marketing Science, compared a Net Promoter-like metric to other metrics and found no advantage for Net Promoter. Timothy Keiningham and his colleagues, in an article in the Journal of Marketing, followed up with an even more rigorous multi-industry test of the Net Promoter metric and came to a similar conclusion -- Net Promoter was no better than customer satisfaction in predicting future growth.

Mr. Reichheld has done all of us a service by helping to make the C-suite aware of customer loyalty. But just as there are no "five secrets of getting rich" or "three keys to a healthy love life," there is also not just one number you need to know about loyalty. The most sophisticated companies may start out with a metric such as Net Promoter that gets top management thinking about loyalty, but eventually they will move on to methods and metrics with more powerful capabilities -- such as the customer-equity approach discussed here.
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