Research Journey

Our Investigation of the Net Promoter Score

AMA ServSig Doctoral Consortium Taipei 2013National Taiwan University, Taipei, Taiwan — July 3-4, 2013

Lerzan Aksoy & Timothy Keiningham

Lerzan AksoyAssociate Professor of

MarketingFORDHAM UNIVERSITY

Timothy Keiningham

Global Chief Strategy Officer

IPSOS LOYALTY

The Team

Tor Wallin AndreassenProfessor of

MarketingNorwegian School of Management

Lerzan AksoyAssociate Professor of

MarketingFordham University

Timothy KeininghamGlobal Chief Strategy

OfficerIpsos Loyalty

Bruce CooilThe Dean Samuel B. and Evelyn R. Richmond Professor of Management

Vanderbilt University

“A Longitudinal Examination of Net Promoter and Firm Revenue Growth,” Journal of

Marketing, July 2007

2007 MSI H. Paul Root Award

“The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Customer Retention, Recommendation, and Share-of-Wallet,” Managing Service Quality, 17 (4), 2007

2007 Outstanding Paper (Best Paper) Award

“Linking Customer Loyalty to Growth,” MIT Sloan Management Review, Summer, 2008

REALLY Know the Topic

Timothy Keiningham

Net Promoter Score Featured in the Harvard Business Review, MIT Sloan

Management Review, and the book The Ultimate Question

How to Calculate a Net Promoter Score

Net Promoter asks one question, “Would you recommend us to a friend or colleague?” that customers answer on a scale of 0 to 10.

Responses are grouped into three categories: Detractors, Passives and Promoters.

Subtract Detractors from Promoters and you have a Net Promoter Score.

0 1 2 3 4 5 6 7 8 9 10

Likelihood to RecommendNot At All Extremely

Likely Neutral Likely

Detractors Passives Promoters

Promoters Detractors Net Promoter

Net Promoter Is Sold As “The Single Most Reliable Indicator” Of Firm Growth

http://www.netpromoter.com/

Reichheld’s Analysis

Reichheld, in partnership with Satmetrix and Bain &

Company, conducted both a micro (customer-level) analysis

and a macro (firm-level) analysis as part of his Net

Promoter research.

Key Findings from Reichheld’s Macro-level (Firm-Level) Analysis

“Net Promoter is the “single most reliable indicator of a company's ability to grow.”

• Net Promoter links to firms’ relative growth rates within their respective industries

• Net Promoter leaders outgrow their competitors in most industries by an average of 2.5 times.

• A twelve-point increase in Net Promoter leads to a doubling in a company’s rate of growth on average.

• The key finding of this research is that firms need only track Net Promoter if the goal is firm growth.

Reichheld, Frederick F. (2003), “The One Number You Need to Grow,” Harvard Business Review, vol. 81, no. 12 (December), 46-54.

Satmetrix (2004), “The Power Behind a Single Number: Growing Your Business with Net Promoter,” Satmetrix Systems white paper <http://www.satmetrix.com/pdfs/netpromoterWPfinal.pdf>

Two Key Findings from Reichheld’s Micro-level (Customer-Level) Analysis

“The likelihood to recommend question proved to be the top correlate to actual customer

behavior 80% of the time” (Satmetrix 2004).“More explicitly, if customers reported that they were likely to

recommend a particular company to a friend or colleague, then these same customers were also likely to actually repurchase from

the company, as well as generate new business by referring the company via word-of-mouth.”

Recommend intention is the only variable needed to predict customers’ loyalty

behaviors.Reichheld states, “Interestingly, creating a weighted index – based

on the responses to multiple questions and taking into account the relative effectiveness of those questions – provided insignificant predictive advantage.” (Reichheld 2003).Reichheld, Frederick F. (2003), “The One Number You Need to Grow,” Harvard Business Review, vol. 81, no. 12

(December), 46-54.Satmetrix (2004), “The Power Behind a Single Number: Growing Your Business with Net Promoter,” Satmetrix Systems

white paper <http://www.satmetrix.com/pdfs/netpromoterWPfinal.pdf>

Data Is King!!!

We Obtained Data to Replicate the Micro-Level Analysis from a Large Market Research Firm

• We examined data from a two-year study of over 8,000 customers of firms in one of three industries: retail banking, mass-merchant retail, and Internet service providers (ISPs).

• Individual customer ratings of common satisfaction and loyalty metrics were monitored over two years.

• In the second year of the study, customers’ purchasing (retention and share-of-wallet) and recommendation behaviors were also tracked.

Our Findings from the Micro-Level Analysis

Customers’ future loyalty behaviors are distinct (retention,

share of wallet, and word of mouth). As a result,

no single measure adequately predicted customers' future

loyalty behaviors

Finding Valid Firm-Level Multi-Industry Longitudinal Data for the Macro-Level Analysis

Proved Difficult

• The American Customer Satisfaction Index (ACSI) does not ask a recommend intention question

• Fortunately, we were able to obtain equivalent data to that used by Reichheld from the Norwegian Customer Satisfaction Barometer (NCSB) .

• We used 15,500+ interviews from the NCSB to replicate the macro-level analysis

Our Findings from the Macro-Level Analysis

No single measure did an adequate job of predicting

firm growth. For example, Net Promoter was only best 2 out of 19

times!

Possible Research Bias?

We examined potential factors that could have

caused our results to differ, however, none appear

plausible.Based upon our analysis, it is difficult to imagine a scenario whereby Net Promoter would be classified as the superior

metric.

Go the Extra Mile

Timothy Keiningham

How Can We Make and Apples-to-Apples Comparison?

• Without access to the raw data used by Reichheld, it is impossible to know with certainty if the variables under consideration were examined fairly.

• There is, however, one opportunity to compare Net Promoter to one metric that Reichheld examined and criticizes: the American Customer Satisfaction Index (ACSI).

Reichheld Specifically Targets the American Customer Satisfaction Index as Inferior in His

HBR ArticleOur research indicates that

satisfaction lacks a consistently demonstrable connection to

actual customer behavior and growth. This finding is borne out by the short shrift that investors

give to such reports as the American Customer Satisfaction

Index. The ACSI, published quarterly in the Wall Street Journal, reflects customer

satisfaction ratings of some 200 U.S. companies. In general, it is

difficult to discern a strong correlation between high

customer satisfaction scores and outstanding sales growth.

Reichheld Specifically Targets the American Customer Satisfaction Index as Inferior in His

Book“Some recent evidence that there is little connection between satisfaction

scores and economic results comes from the ACSI itself, whose data used to be published each quarter in the Wall Street Journal (under the heading of

marketing, not investing)” (The Ultimate Question, p. 85).

Reichheld States that Bain Research Shows a ZERO Correlation between the ACSI and Growth

Frederick F. Reichheld (2004), “Net Promoters,” Bain Audio Presentation, (February 24), <http://resultsbrief.bain.com/videos/0402/main.html>

“A Bain team looked at the correlation between growth and satisfaction, and found there is none.” Reichheld 2004

An R-square of 0.00 indicates absolutely no correlation whatsoever!

The ACSI

An Opportunity to Compare Net Promoter and the American Customer Satisfaction Index

Reichheld presents charts for three industries that are also tracked by the ACSI: airlines, life insurance, and computers.

Data showing the relationship between Net Promoter scores and growth were reconstructed based upon scatter-plots of the data featured in the appendix to The Ultimate Question (Reichheld 2006, pp. 192-194). • To insure accuracy, the tables were scanned, and the

corresponding graphics imported into a charting software package where they were used as background images.

• As a final check of the data, the R-square of the recreated data was compared to the R-square reported by Reichheld -- all were identical.

As these data sets were specifically selected by Reichheld to demonstrate the linkage between Net Promoter and growth, they clearly should reveal relationships where Net Promoter is a superior predictor of growth to other metrics.

Comparison of Net Promoter and ACSI:Personal Computers

R2: .68R2 (ACSI only companies*): .70 R2 (ACSI only companies*): .76

Net Promoter American Customer Satisfaction Index (ACSI)

Thre

e ye

ar s

hipm

ent g

row

th

670% 10% 20% 30% 40% 50% 60% 69 71 73 75 77 79

0%

-20%

-10%

10%

20%

30%

40%

0%

-20%

-10%

10%

20%

30%

40%

IBM

Dell

H-P

GatewayCompaq

Dell

H-P

GatewayCompaqThre

e ye

ar s

hipm

ent g

row

thNet Promoters Q1 2001 - Q4 2002 ACSI 2001 - 2002

* The ACSI does not track IBM

Comparison of Net Promoter and ACSI:Life Insurance

R2: .86R2 (ACSI only companies): .83 R2 (ACSI only companies): .58

Net Promoter American Customer Satisfaction Index (ACSI)

Pre

miu

m G

row

th (1

999-

2003

)

-20% -10% 0% 10% 20% 30% 40%

5%

-5%

0%

10%

15%

NY Life

Dell

Met Life

Prudential

Net Promoters Q1 2001 - Q4 2002

NorthwesternState Farm

Primerica

73 83

5%

-5%

0%

10%

15%

NY Life

Dell

Met Life

Prudential

ACSI 2001 - 2002

Northwestern

75 77 79 81

Pre

miu

m G

row

th (1

999-

2003

)

* The ACSI does not track Primerica and State Farm

Comparison of Net Promoter and ACSI:Airlines

62

R2: .68R2 (ACSI only companies): .57 R2 (ACSI only companies): .70

Net Promoter American Customer Satisfaction Index (ACSI)

Net Promoters Q1 2000 - Q4 2002 ACSI 2000 - 2002

Thre

e ye

ar g

row

th

-10% 0% 10% 20% 30% 40% 50%

-5%

-10%

0%

5%

10%

60%

Southwest

Alaska

Continental

United

Delta

AMR

US Air

TWA

NorthwestAm. West

Thre

e ye

ar g

row

th

58 64 66 68 70 72

-5%

-10%

0%

5%

10%

74

Southwest

Continental

United

Delta

AMRNorthwest

60

US Air

* The ACSI does not track Alaska, Am. West, and TWA

Slow = Dead

Someone Has to Drive the Process

Keeping the Process Moving QuicklyWill Not Make You Popular

Getting There Is Not Half the Fun?

Why do youkeep this job?It’s killing you.

I thought “publish orperish” was rhetorical.

Actual Quote from Co-Author Regarding the Relentless Pressure to Complete This Paper Quickly

“If our friendship survives this paper, we will be

friends forever.”

The Reality:If Your Topic Is Important, Someone Else Is Working

On It Too! Leading scientific

researchers teamed up with J.D. Power to gather the necessary data to investigate the ability of Net Promoter to predict financial performance.

The results of this research were published in Marketing Research in the Summer of 2007.• Our Journal of

Marketing paper was published in July 2007.

You Cannot Please Everyone

Important Works Often Have Difficult Reviews

Reviewer Reaction Is Split!

The reviews of 06-263-IR, “A Longitudinal Examination of ‘Net Promoter’ … ,” are now in. This version was reviewed by a panel of four knowledgeable reviewers. In addition I read the paper carefully myself.

The reviewer reaction is split, with Reviewers 1 and 4 recommending acceptance, Reviewer 3 recommending revision, and Reviewer 2 recommending rejection.

The Entire Review from One Reviewer

Reviewer Number: 2 This paper is interesting and clearly written. Unfortunately it is not particularly scholarly. Almost no literature is cited, no theories drawn upon, or built upon. The introduction is high in fluff quotient. Difficult to assess whether data differences (i.e., whether the Norwegian data are comparable to the findings in Sweden and the U.S.) are attributable to cultural differences or mere measurement issues.Methodological techniques are far too narrow and simple.

The Importance of a Strong Editor Who Knows the Topic

I know enough about this industry to know the potential importance of this paper in the business world, given the surprising popularity of Reichheld’s measure among business leaders. This paper gives proper scrutiny to a current management fad. …Overall I believe that the positives of the paper, noted clearly by the reviewers, far outweigh the negatives. … Because of this, based on the reviewers’ evaluations and my own reading, I am pleased to conditionally accept your paper for publication in JM.

PROMOTE,PROMOTE,PROMOTE!

Getting the Word Out

We researched every article and blog post we could find that had

written on Net Promoter.

We personally contacted every one of these authors to let them

know the findings of our research.

Net Promoter Score Under Attack, Research Magazine, July 2007

The Net Promoter Debate, Ad Map, May 2007

Reichheld Under Attack, Colloquy, Summer 2007

The Only Number You Need to Know Does Not Add Up to Much, Marketing Week,

March 6 2008

One Question and Plenty of Debate, Wall Street Journal, December 4, 2007

If Your Research Challenges Something

Popular, Expect a Backlash

Nobody Likes to Be Told the Emperor Has No Clothes, Particularly Those Who Have Chosen

the Emperor’s Tailor

No Regrets

Despite the backlash (and

career threats),we would do it

again…in a heartbeat!

The Keiningham-Aksoy Guiding Principles for Writing & Publishing

The Keiningham-Aksoy Guiding Principles for Writing & Publishing

1. You never know what will get accepted, so work on lots of things simultaneously.

2. You cannot be an expert at everything, so a) build great teams, and b) do everything you can to make your teams

successful. Work with people you like, and who are committed to working as

a team.3. Faster, faster, faster! A slow paper is an idea that will be

published first by someone else.4. Get your paper published! Our personal addition is

“even if it is on a cereal box!” Everything you write cannot be a Tier 1 paper, but if your

research was important enough for you to conduct and report, then it needs to be in print.

Discussion & Questions

Timothy Keiningham