What‘s Wrong With Reichheld‘s Netpromoter Score


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What‘s Wrong With Reichheld‘s Netpromoter Score

  1. 1. BSI<br />What‘sWrongWithReichheld‘sNetpromoter Score<br />Marketing 2.0 Conference, Paris 2009<br />
  2. 2. Jointheconversation<br />MARKETING 2.0 CONFERENCE<br />www.marketing2conference.com<br />
  3. 3. What’s Wrong with Reichheld’s Net Promoter Score? <br />Robert East<br />Kingston Business School, London<br />R.East@kingston.ac.uk<br />
  4. 4. Uses of the NPS <br />To see whether the firm is doing the right thing by its customers<br />To reward staff<br />To predict sales and profit<br />
  5. 5. The Net Promoter Score (NPS)<br />How likely is it you would recommend us to a friend?<br />Extremely likely<br />10<br /> 9<br /> 8<br /> 7<br /> 6<br /> 5<br /> 4<br /> 3<br /> 2<br /> 1<br /> 0<br />% Promoters<br />minus<br />Passives<br />% Detractors<br />equals<br />Net Promoter Score (NPS)<br />Extremely unlikely<br />
  6. 6. Consumer Satisfaction Index<br />The CSI was developed by Claes Fornell and operates in the USA, Sweden, Hong Kong and other countries<br />based on three scales<br />in data crunching tests, both the NPS and the CSI predict sales but only the CSI predicts profit<br />investing on the basis of CSI scores, Fornell has beaten the market year after year <br />but he did not make money by selling short the brands causing dissatisfaction<br />
  7. 7. Is the NPS Well Designed?<br />Need to measure the relative volumes of PWOM and NWOM on brands and their average impact<br />the NPS does not measure NWOM volume or impact<br />Detractors can give PWOM and promoters can give NWOM<br />The NPS only measures the PWOM of current customers<br />Likewise, the CSI only measures the satisfaction of current customers<br />
  8. 8. The Ownership of Brands Cited in PWOM and NWOM (14 studies)<br />
  9. 9. Implications<br />What is needed is for promoters to express much of the PWOM and little NWOM, and detractors to express most of the NWOM and little PWOM – they must discriminate<br />Promoters may express much of the PWOM because this is mostly expressed about the main brand<br />But detractors cannot express much of the NWOM because most of this is expressed by the owners of other brands<br />
  10. 10. What WOM Have Promoters and Defectors Given (Last 6 Months)<br />We asked them the NPS question to identify promoters, passives and defectors<br />And we asked them what PWOM and NWOM they had given in the last six months on all brands, not just their main brand<br />
  11. 11. Three Categories<br /><ul><li> Promoters discriminate but give a minority of the PWOM
  12. 12. Detractors neither discriminate nor cover much NWOM in two cases</li></li></ul><li>We Can Do the Same for the CSI<br />Percentages of PWOM and NWOM produced by the satisfaction equivalent of promoters and detractors in three categories<br />
  13. 13. A NEW Metric<br />Based on received WOM <br />Separate measurement of volume and impact of PWOM and NWOM<br />Then <br />Net Effect of WOM on share (NEW) varies as <br /> (VP×IP + VN×IN)/MS<br /> V and I express volume and impact, MS denotes market share, and the subscripts P and N relate to PWOM and NWOM respectively. Note that the NEW measure is a sum because the effect of NWOM is negative on buying propensity. <br />
  14. 14. Correlations between Measures Using the Top Four Brands<br /><ul><li> Satisfaction and NPS are quite strongly correlated in all three studies
  15. 15. NEW is quite different from satisfaction and the NPS in two studies, justifying further testing
  16. 16. NEWnon-price can differ from NEW</li></li></ul><li>Conclusions<br />The NPS is inadequately designed<br />At best, the NPS gives a measure of PWOM but it fails to capture NWOM<br />ACSI is similar<br />So we need a measure that captures NWOM<br />NEW is well formulated<br />But it requires a large amount of data – our computation was simplified to reduce random error<br />The next stage needs to be a large scale trial on national samples so that results can be linked to national sales and other brand performance measures<br />