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The Problem with the Net Promoter Score

October 23, 2013

Larry Freed, CEO of ForeSee and author of the new book “Innovating Analytics,” recently told ContactCenterSolutions that while big data presents a great opportunity for companies to better understand their customers, there’s also a need to rethink existing models for categorizing customers.

The Net Promoter Score has risen to prominence in recent years as a way for organizations to easily classify their customers as detractors, passives or promoters. But Freed said NPS has hit its peak and is on the way down because it’s not a very predictive metric. As noted in his book, NPS has a high margin of error, is overly simple, and doesn’t take into consideration that customers may at some times fit into more than one of these categories.

A better method for understanding customers, according to Freed, is what he calls the Word of Mouth Index.

“WoMI evolves NPS by measuring both likelihood to recommend and likelihood to detract from a specific brand by adding a second question,” explained Freed. “How likely are you to discourage others from doing business with this company?”

The idea that the days of the NPS are numbered is not entirely new.

Earlier this year I met Matt McNerney, president at Ipsos Loyalty, Research & Consulting. He said NPS doesn’t necessarily translate into increased wallet share. To illustrate this point, he noted that Kmart reported its highest customer satisfaction rate the same year it filed bankruptcy. Meanwhile, WalMart had an initiative to improve the appearance and aisle width in its stores, which did make customers happier, but didn’t ring up more sales.

What organizations should be doing is looking not only at customer satisfaction but also at the competition, and their own rank in the market. For example, it would be very helpful for a store to know that only 3 percent of its customers shop there for beauty products exclusively. That means there’s a huge opportunity there to bump up sales for beauty products. Armed with this information, the store might want to assess its beauty production selection and pricing, which, if adjusted, could increase the brand’s rank and per customer spend in this category.

Edited by Blaise McNamee