NPS has its Detractors

Marketers (and, increasingly, people in the C-suites) love Net Promoter Score (NPS). However, a recent article in the Wall Street Journal, headlined “The Dubious Management Fad Sweeping Corporate America,” attempts to debunk the practice.

If you are unfamiliar, NPS is based on a single question asked of consumers: “On a scale of 0-10, how likely are you to recommend this company’s product or service to a friend.”  If you answer 9 or 10, you are a promoter.  If you answer 0-6, you are a detractor. NPS is calculated by subtracting the percentage of customers who are detractors from the percentage who are promoters.

A consultant from Bain wrote in the Harvard Business Review that NPS is a predictor of growth and the “best predictor of consumer behavior.”  Companies have recently begun tying NPS to employee bonuses and revenue projections. NPS is frequently cited on earnings call by Fortune 500 companies.

However, academic research suggests much of this is nonsense. Studies suggest there is no correlation with revenue and that NPS doesn’t predict consumer behavior better than any other survey would. Moreover, the data also tend to be very noisy and require much larger sample sizes than typical surveys.

Even the guy who invented NPS calls many of the applications of the tool, “completely bogus.” The former CEO of Symantic and Intuit says too many companies mistake the score for real insight. It is a number, not an explanation.  (There is usually a “why?” question as part of NPS but companies too often ignore that information, and even that can only provide very limited insight.)

Intuitively, there is something about  NPS that makes sense. You want customers think positively about their experience with you – that goes without saying. So maybe it isn’t that NPS is garbage, but rather that it is one tool that should be viewed in context rather than sold as a be-all-end-all answer.