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Would you recommend this paper to a friend?

: Monday, June 11 - 2007 @ 09:56

The claim is that one question is all that is needed to manage customer relationships and grow a business, and companies can toss out their other customer retention measures. Since then, the simplicity of the measure has made it increasingly popular amongst the CEOs of some of the world’s leading companies. While this simplicity is appealing, it is so simplistic that it can be misleading.

This “ultimate question” is simply “ Would you recommend this company/brand to a friend ? ” measured on a scale of 0 to 10, where 0 is “Not At All Likely” and 10 is “Extremely Likely”. Reichheld takes the analysis further in producing a Net Promoter Score (NPS), derived as follows:

NPS = P – D
where:
• Promoters (P) = those scoring 9 or 10
• Neutral (N) = those scoring 7 or 8
• Detractors (D) = those scoring 0 to 6

Reichheld claims that the NPS is the single most reliable predictor of a company’s growth.

Despite Reichheld’s claims, we found that the ‘Recommend’ question is only measuring the same dimension as traditional customer satisfaction or brand performance questions – namely the extent to which a company or brand fits with customers’ needs and values. Furthermore, measuring only this one dimension is simplistic and insufficient to understand customer behaviour, attitudes and ‘loyalty’ adequately. A multi-dimensional measure of customer commitment that more fully captures the complexities of customer relationships quite clearly demonstrates the inadequacies of the ‘Recommend’ question when used on its own.

The table below shows the limitations of the measure by comparing two stores with different Net Promoter Scores. According to Reichheld, ‘Store I’ should have more loyal customers who also have a more positive image of the store. Yet we see that ‘Store G’ has customers who are almost four times more likely to spend most of their grocery budget at the store, and are twice as likely to say it is their ideal store, when compared to ‘Store I’.

TABLE 1 – NPS does not predict spend or “ideal store”

ideal store

CHART 1 below demonstrates the limitations of the measure when comparing ‘Promoters’ as defined by Reichheld (loyal enthusiasts who keep buying from a company and urge their friends to do the same) to a multi-dimensional measure of commitment.

In this case, we used the Conversion Model™ – which uses needs fit, importance of the decision, attitudes to competitors and level of ambivalence.

We can see that ‘Promoters’ can in fact be committed or uncommitted and in the example, one quarter of the store’s customers are ‘Promoters’ who are actually uncommitted. They are clearly worth less to the store and spend less of their category requirements there. Similarly, ‘Non-Promoters’, who Reichheld dismisses as unhappy or at least “unenthusiastic customers, easily wooed by the competition”, can in fact be committed and therefore quite valuable to the store. In the analysis it is also clear that uncommitted customers (whether they are Promoters or Non-Promoters) are worth about the same to the store and spend about the same share of their budget there. A multi-dimensional measure of commitment such as the Conversion Model™ is demonstrably better at capturing customers’ relationship with the store in both emotional terms and in terms of customer value.

CHART 1 – Promoters can be Uncommitted and Non-Promoters can be Committed ;
i.e. being a Promoter or Non-Promoter is not a good indicator of Commitment or Spend

samra

In my full paper as presented at SAMRA, I show that –

• the ‘Recommend’ question is measuring the same dimension as customer satisfaction or brand performance, namely needs and values fit
• ‘Recommend’ (and the NPS) is inferior to a multi-dimensional measure of customer relationships such as the Conversion Model™ and can be highly misleading
• a serious shortcoming of the model is its inability to take into account customers’ relationships with other brands they may be using
• it only focuses on customers and therefore misses other key market factors influencing a brand’s performance
• the NPS measure dismisses customers who clearly have significant value to a company because it looks only at absolute ratings and not relative ratings (my eight may be your ten)
• the claimed ‘word of mouth’ power of the NPS does not appear to have any impact on the potential of a brand or company to attract non-customers.

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Monday, June 11- 2007 @ 9:56 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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