By Bill Fonvielle and Rowan Jackson
What’s Useless and Everywhere?
When pondering that question, many possible answers might suggest themselves to you: perhaps your least favourite TV presenter, or a politician. Gartner, one of the world’s leading research and advisory companies, has a different answer.
The Net Promoter Score.
NPS is a concept and research method promoted by customer loyalty guru Frederick Reichheld in his 2006 book The Ultimate Question: Driving Good Profits and True Growth. Underpinning NPS is Reichheld’s theory that customer satisfaction and loyalty are strongly linked to revenue growth and profitability. This idea, in turn, is now the foundation of an entire industry.
According to Reichheld, the critical fact that businesses need to know about how they stand with customers can be provided by customers’ answers to one question: “How likely is it that you would recommend our company to a friend or colleague?” Respondents served this question after a recent transaction are asked score themselves on an eleven-point scale that runs from “0” (not at all likely) to “10” (extremely likely).
The Net Promoter Score is so called because the measure is computed by subtracting the percentage of “detractors” from the percentage of “promoters”. Detractors are defined as respondents rating their likelihood to recommend as 6 or less, with promoters only those who rated their likelihood a 9 or 10 (respondents who selected 7 or 8 are considered neutral). The NPS measure can run from – 100% (0% promoters, 100% detractors) to +100% (100% promoters, 0% detractors), with typical results in the +25-40% range.
Intended as useful for measuring customer satisfaction as a proxy for customer loyalty, NPS’s popularity in the boardroom has grown so much in the last 15 years that it is now frequently used as a measure of anything that may be a factor in a customer or client’s decision whether to continue a relationship or not, including service quality, product quality and intent to repurchase. And this, according to Gartner’s new report, NPS Is Everywhere, but It’s Useless for Customer Service, is where the problem lies.
How and Why NPS Falls Short
Published in May 2021, the Gartner report makes the case that NPS is actually a poor measure of customer service and support, and that leaders should instead look at other methods of measuring their customers’ satisfaction with service. Indeed, the report expects that they will do just that, predicting that more than 75% of organisations currently using NPS to measure customer service will abandon the practice by 2025, due to the difficulty of deriving actionable, service-focused insights from the data it gathers.
The NPS question, which measures likeliness to recommend, requires respondents to take a holistic view of the product, service, or company they are evaluating, and then predict their own behaviour in a hypothetical future situation. When considering this question, customer service is, of course, an aspect the respondent will consider – indeed, it’s the biggest single aspect. At Promising Outcomes, we’ve known this for years. Our research guru, Bill Fonvielle, conducted a study into the customer experience as long ago as 1988, and found that 70% of vendor switching is due to poor service quality, while 15% comes down to price, and 15% to product quality.
So, while service issues are hugely important to whether an individual continues to use a product, service or supplier, they’re not the only factor at play. Likewise, they’re not the only factor that will influence whether or not to recommend something to a friend, which is what NPS is specifically intended to measure. As Deborah Alvord, senior director analyst in the Gartner Customer Service and Support Practice, puts it: “the broad language used in the NPS metric captures customers’ intent based on their evaluation of more than just customer service, making it difficult to identify what actions customer service functions should take to improve performance.”
This reduction of customer service, product quality, price and value to just one number inevitably creates problems for leaders trying to learn lessons and improve processes.
So, Why NPS?
Given what seem like fairly obvious drawbacks, why is NPS so widely used currently? And what can customer service specialists do as they try to influence their organisations away from NPS?
According to Gartner, “C-suite leaders believe NPS is the best indicator of loyalty.” Consequently, “CEOs often use it [NPS] for talking points and competitive positioning with investors, making it challenging for customer service and support leaders to move executives away from that perception.”
This behaviour is not a new phenomenon. In 2019, The Wall Street Journal published an article, The Dubious Management Fad Sweeping Corporate America, that critically documented the frequency with which NPS scores are touted by CEOs in earnings reports and conference calls.
The principal selling point of NPS to CEOs and other senior business leaders is indeed its simplicity. An NPS score is easy to understand and easy to compare. Potentially harmful as it is, playing a game of “My NPS is bigger than yours” is understandable macho human behaviour. And, it should be said, as long as it impresses investors, NPS will continue to be cited by business leaders competing for their attention.
While we at Promising Outcomes agree wholeheartedly with Gartner on the drawbacks of NPS, and have documented them fully in our article The Net Promoter Scam: How NPS is Misleading Your Business, we respectfully disagree with them on the methods businesses should use instead to measure the quality of the service they provide.
Gartner suggest that companies should focus their data-gathering efforts on metrics such as customer satisfaction (CSAT), customer effort score (CES) and value enhancement score (VES), which they describe as “more actionable” than NPS.
Challenges abound with these approaches as well. It has been long established that satisfaction (CSAT and ESAT) is not a reliable predictor of customer (or employee) loyalty or of customer behaviour.
NPS became popular in part because many firms grew dissatisfied with CSAT and wanted something more reliable.
Contrary to Gartner’s assertion, VES is no more diagnostic than NPS. In its primary form it consists of a 2-question survey that asks about the respondent’s ability to use the product or service, and their confidence in their purchase decision. Is it worth noting that VES is Gartner’s creation?
CES can provide some useful information, but only about a narrow slice of the customer experience. It’s like walking through the Louvre with blinders on, causing you to miss the important masterpieces on either side of you.
We know that about 70% of the reasons that customer switch from one provider to a competitor are service related. It follows that to improve loyalty, leaders need customer service insights that NPS cannot provide. Thus, competitive advantage will fall to those brave enough to not follow the NPS herd, and instead turn to better methods. Unfortunately, most of the methods being espoused these days suffer from fatal defects.
The key insight to imagining a better method comes when remembering the venerable saying that customers don’t buy a product or service; they buy an experience.
The key action is to capture and understand customers’ expectations of their ideal experience for your industry. We know from other client research we have undertaken that, regardless of industry, about 70% of customer expectations are service and sales related. Measuring customer perceptions of actual performance against expectations of ideal performance will reveal in glaring detail where the critical service shortfalls are.
The quest to increase customer loyalty and to competitive differentiation in a crowded market must include a laser-focus on service quality since poor service is the aspect of the overall CX most likely to push your customer to another supplier. Understanding expectations will open the door to greater success. We at Promising Outcomes are in accord with Gartner that NPS is useless, but we disagree with them about what to replace it with.
At Promising Outcomes, we can provide the actionable data and penetrating insight your business needs. If you could use some help in gaining a true understanding of the CX you provide and why, despite your best efforts, there does not seem to be a correlation between your customer service data and your customer retention, talk to us today.