The Net Promoter Debate

An Interview with Tim Keiningham, Senior Vice President, Ipsos Loyalty

Net Promoter is one of the hottest business metrics of the moment. Firms like General Electric, Intuit, and American Express embrace the formula because of its reported linkage to growth. This summer, however, two leading scientific journals will publish papers challenging the claims to Net Promoter's predictive powers. Tim Keiningham, Senior Vice President of Ipsos Loyalty and the lead author of these papers, discusses the startling results of these investigations in excerpts from an interview running in the May 2007 issue of Admap magazine.

Net Promoter is a very popular with metric with executives. What exactly is Net Promoter?

Net Promoter is a hot business idea at the moment. Companies such as General Electric, American Express, Progressive, Intuit, and many others are using the metric in efforts to grow their businesses. The Net Promoter Score is even being reported by CEOs to analysts in their conference calls.

Net Promoter is a very simple metric designed to gauge the loyalty of a firm's customers. The metric is calculated based on customers' responses to one survey question, "Would you recommend us to a friend or colleague?" that customers answer on a scale of 0 to 10. Responses to this question are grouped into three categories: Detractors (ratings of 0-6), Passives (ratings of 7-8), and Promoters (ratings of 9-10). You simply subtract the proportion of Detractors from Promoters and you have a Net Promoter Score.

Given the widespread adoption of Net Promoter, we believed it appropriate to examine the claims attributed to the metric.

What did you find?

Simply put, we find no support for the assertions attributed to Net Promoter. Our research clearly shows that claims of Net Promoter's superiority in predicting firm growth, or in predicting customers' future loyalty behaviors are false. Based on the evidence we've compiled, it's hard to imagine a scenario where Net Promoter would be classified as the superior metric. [In fact, we even replicated a subset of Reichheld's data for industries he cites as exemplars of Net Promoter in his best-selling book The Ultimate Question. We then compared this data to a metric Reichheld claimed was examined and found to have a 0.00 correlation to growth. Surprisingly our research found that Net Promoter was not superior to this metric, even when using Reichheld's own data for his best-case scenarios.]

How did you test Net Promoter?

First, we brought together a team capable of rigorously examining Net Promoter. My coauthors, Professor Bruce Cooil of Vanderbilt Owen Graduate School of Management (USA), Tor Wallin Andreassen of the Norwegian School of Management (Norway), Lerzan Aksoy of Koз University (Turkey), and Jay Weiner of Ipsos (USA) are recognized experts in loyalty, statistical analysis and modeling. We then sought to replicate the findings of the reported Net Promoter research.

Reichheld, Satmetrix, and Bain & Company conducted both a micro (customer-level) analysis and a macro (firm-level) analysis as part of their Net Promoter research. The results of the micro-level analysis revealed:

  1. Customers' stated "likelihood of recommending" the firm is the single best predictor of customers' future loyalty behavior, and
  2. Using other variables, in addition to "likelihood of recommending," does not significantly aid in the ability to predict customers' future loyalty behavior. Results of the macro-level analysis revealed that Net Promoter was superior in linking to firms' relative growth rates within their respective industries.

As a result, we conducted two separate studies: a customer-level analysis, and a firm-level analysis of Net Promoter.

What has been the response to the research?

The journal, Managing Service Quality, accepted a paper that we wrote based upon the customer-level research.1 160The Journal of Marketing accepted a paper that we wrote based upon the firm-level research.2 160The research has also resulted in a good deal of media attention, including a Wall Street Journal article, which is quite remarkable given that the papers are not yet available.3 160We have already received hundreds of requests for information on our papers. Because the papers will not be made available until they are in print, my coauthors and I made a summary available for download of the firm-level analysis on the Loyalty Myths website.

What does this research mean for companies that have adopted Net Promoter?

That is a difficult question to answer. As complaints about the effectiveness of Net Promoter have begun to surface, supporters argue that detractors are missing the point; Net Promoter is simple and gets companies to focus on customers. That may well be true, but the research used to support Net Promoter focused exclusively on growth ... in particular, Net Promoter's superiority in linking to growth. Few managers would adopt a metric just because it was simple. Simple and wrong is simply wrong.

1 Keiningham, Timothy L., Bruce Cooil, Lerzan Aksoy, Tor Wallin Andreassen, and Jay Weiner (2007), "The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Customer Retention, Recommendation and Share-of-Wallet," Managing Service Quality, vol. 17, no. 4, forthcoming. 2 Keiningham, Timothy L., Bruce Cooil, Tor Wallin Andreassen, and Lerzan Aksoy (2007), "A Longitudinal Examination of Net Promoter on Firm Revenue Growth," Journal of Marketing, vol. 71, no. 3 (July), (forthcoming). 3 Thurm, Scott (2006), "The One Question, and Plenty of Debate," The Wall Street Journal, (December 4), B3.

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