Net Promoter Score
Less than three years after its inception, one of the most provocative marketing ideas since "The Tipping Point" is, well, hitting a tipping point. GE, American Express and Microsoft have all adopted the metric, which is both praised and panned for its simplicity, and is being used to kill or tweak unpopular products, determine the pay of senior executives and better connect office-bound managers to customers and other stakeholders. The so-called Net Promoter Score is even being reported to investors.
It all began in late 2001, when Bain & Co. consultant Fred Reichheld hosted a gathering where Enterprise Rent-A-Car CEO Andy Taylor described a process for determining customer loyalty that consisted of two questions. That simplicity led to an epiphany for Mr. Reichheld, a loyalty-marketing vet and no stranger to byzantine processes for studying why customers decide to stray or stay.
Harvard Business Review
"The light bulb went on," said Mr. Reichheld, who went on to cut Enterprise's already lean model in half. In December 2003, he published a Harvard Business Review article titled "The One Number You Need to Grow" -- that number being Mr. Reichheld's Net Promoter Score.
"It's the most important thing we have going in our business," said Juan Corsillo, commercial leader for GE's Capital Solutions unit. "Everyone's thinking about growth now, even functions like legal, financial and risk. Everyone touches the customer, even if it's through policies or requirements that touch the customer experience."
At the heart of Mr. Reichheld's thinking (which is now in book form) is the controversial contention that there exists a mass dissatisfaction with the way customer-satisfaction data are compiled. He argues that companies have for years based decisions on satisfaction surveys that have a poor response rate, largely because they're too long. They're so long, in fact, they've come to "appeal only to the lonely, the bored and the seriously aggrieved," as he puts it.
Reduced to a single question
Mr. Reichheld said all those questions can be reduced to a single one, answered on a scale of 0 to 10, that places a lot of weight on a customer's own credibility: How likely is it that you would recommend our company to a friend or colleague? The Net Promoter Score is then determined by subtracting detractors (those who gave a 0 to 6) from promoters (those who gave a 9 or 10). Companies that fare well are firms such as FedEx (its NPS is 56%), Southwest (51%) and Costco (79%). What's more, Mr. Reichheld's research has turned up correlations between Net Promoter Scores and growth in categories such as airlines, personal computers, internet-service providers and life insurance.
To those who get worked up about such things, the notion that loyalty can be reduced to a single question yielding a single score is heresy. But NPS is meant to be more than just a shot across the bow of the market-research industry, and it's actually having operational effects at the top levels of more than a few Fortune 500 companies.
Far from shy about offering his vision for the score, Mr. Reichheld said: "My personal goal is to have the Net Promoter Score reported by all public companies, but as a generally accepted set of principles, and it has to be audited. But that's five to 10 years away."
GE's companywide program
GE's companywide embrace is rapidly becoming the central case study for NPS. Mr. Corsillo, whose bonus, like that of many GE executives, is partially based on the score, said that it's used both for troubleshooting things like relationships between sales reps and customers and for capitalizing on advocates
What effect will it have on the ad business, as it's rethinking just about every part of itself, including the way it measures the effectiveness of what it does? Advertising Research Foundation Chief Research Officer Joe Plummer said the Net Promoter Score offers a twist on the notion of brand ambassadorship, but he was skeptical about how much it will influence the agency business.
"Agencies are going to struggle with this," said Mr. Plummer. "It's so far down the line. They'll say we're in the business of creating brand meaning and prospects, and we're not sure a lot of what we do ... can turn a transactor into an ambassador. "
He added: "Look, if the client is using it the agency will use it. But intellectually they're not going to embrace it like the marketers are. They've traditionally struggled with loyalty and satisfaction measures and have left them to 'the product people.' That all has to change, though."
One segment of the marketing world where it is having a dramatic effect is the word-of-mouth community, where it's becoming an industry standard. "It's simple, it's easy to calculate and it's tied to revenue growth," said Dr. Walter Carl, assistant professor of communications studies at Northeastern University.
Among those using it is Bazaarvoice, an Austin, Texas, firm that poses Mr. Reichheld's question to people who visit ratings and review sites it maintains for the likes of CompUSA and Petco.
Mr. Reichheld is also trying to build his own group of promoters. His book, "The Ultimate Question," is being seeded by BzzAgent, the Boston company that lets marketers tap into a network of brand evangelists.