Article -> Good, Better and Best Customer Loyalty Measurements
Date Added: October 2007
Naysayers, Monday-morning quarterbacks, and those in the “ivory tower” – many are willing to criticize. Remarkably, these same doubters often fail to present a better solution. This is true in life, in business, and especially, the academic community where analysis and disagreement thrive.
As our quest for scientific validation grows, academic and business communities butt heads with more frequency and force. Business principles are bolstered by academics’ rigorous statistical and social analysis. Similarly, knowledge learned in the academic arena – social research – can be useful to savvy marketers trying to gain an edge.
Good or Better? Consider business writer Fred Reicheld’s effort to develop an effective customer loyalty metric. He believed it could serve as an indicator of future company growth. It does not take an MBA or higher academic credentials to link customer loyalty to increased revenue. In 2003, Reicheld reduced the principle to one question: How likely are you to recommend our company to friends and colleagues?1 Based on his Net Promoter Score (NPS)2, he argued future organizational growth could be predicted.
Our research also shows a positive correlation between customers recommending an organization to others and impact on future growth. However, we also discovered the answer to this one question represents an insufficient amount of data to drive corporate strategy. Thus, we integrate Reicheld’s question into our AL2Asm
(Ask, Listen, Learn & Act) process along with several other questions – as well as a qualitative process of probing customers for additional information.
Still, after publication of Reicheld’s latest book, notoriety in the global business community, and widespread adoption of NPS by some of the world’s most successful organizations; doubters and naysayers indeed arose.
Doubt has been cast in the American Marketing Association’s Journal of Marketing. Its authors argue that NPS is not the most valid predictor of future organizational growth. Even when using Reichheld's own data for his best-case scenarios, the authors suggest Net Promoter was not superior to a metric Reichheld claimed had no correlation to growth. Notably, they do not contend ACSI – the American Customer Satisfaction Index – is better. Neither NPS nor ACSI sufficiently capture enough data to affect strategy. The authors’ concluding statement is telling: “Net Promoter has been promoted as the only metric needed in customer surveys to manage growth. Ironically, our comparison of Net Promoter with the ACSI shows that Net Promoter is not superior to the ACSI for the data under investigation.”3
Ultimately, while both can be useful, neither impacts strategy – consistent with our own research.4 This is precisely why the AL2A process was created.
It is not the semantics alone in Reicheld’s promotion of NPS that are under attack. True, Reicheld could have promoted NPS as “the best indicator of future growth” rather than “the one question to indicate future growth.” Rather, it is the scope of the data and whether it is comprehensive enough to drive action – exactly what the second A in AL2A represents – Act.
1 Reicheld, Fred (2006). The Ultimate Question. Harvard Business School Publishing.
2 Customers are asked one question on a 0-10 scale. The percentage of respondents
rating the organization a 6 or less (detractors) is subtracted from the percentage of
respondents rating the firm a 9 or 10 (promoters). The difference represents a firm’s
Net Promoter Score.
3 Keiningham, Timothy L.; Cooil, Bruce; Andreassen, Wallin Tor; and Aksoy, Lerzan.
“A Longitudinal Examination of Net Promoter and Firm Revenue Growth.” Journal of
Marketing, Vol 71 (July 2007), 39-51.
4 Yeghiaian, David (2007). Pieces for Profit. Winners Success Network.