NPS - unreliable number
“Will you recommend us?” They constantly ask the companies of their clients. This question has spread so widely that cities, universities, and even boy scouts in America ask this question. After his appearance in 2003, he quickly gained popularity, almost like Justin Bieber. Of course, many doubt its usefulness, but, however, they don’t stop talking about it and thinking that maybe there is something in the depths of it.

This question is, of course, used to calculate the consumer loyalty index (NPS).

A brief history of NPS in three sentences:

Shortly after the publication in 2003 of HarvardBusinessReview of Fred Reicheld’s article “The only number that needs to grow” (“Theonenumberyouneedtogrow”), the concept became a sensation.
The “single number” is found by subtracting the percentage of those who “definitely will not” recommend the company, from the percentage of those who “definitely will” recommend it.
It is argued that using one simple question as a business guideline, a company can grow faster.
NPS was the subject of discussion in conference rooms and began to be widely used to measure the success of companies, and some even began to pay remuneration to managers and employees for achieving certain tasks related to NPS.

The problem is that the statement that the given index correlates with growth is actually false. On the contrary, companies using this tool are growing more slowly.

But let's consider the question step by step.

What is the consumer loyalty index?
“Singular” is found using the question “How likely is it that you would recommend [Company X] to your friends and colleagues on a scale from 0 to 10?” The data obtained is grouped into the Supporters category (results 9 and 10), Critics (results 0-6 ) and Neutral consumers (results 7 and 8). NPS is calculated by subtracting the proportion of Critics from the proportion of supporters.

Why did he become so popular?
He looks logical. The correlation of income with recommendations seems logical. Plus, publishing the article in HarvardBusinessReview made the concept more “weighty” and “plausible.” NPS is easy to follow, it requires only one question, which is easy to voice and which can be used to track company progress.

How do we know that it does not work?
To test this statement, an experiment was conducted. Companies that according to reports by BainandCompany (big supporters of this tool) use NPS were taken. Then the growth rate of these companies was calculated and compared with the growth of companies randomly selected from the S & P 500 list. What was discovered turned out to be the opposite of what one would expect: 62% of companies using the consumer loyalty index showed a positive growth since 2012 to 2015. At the same time, 68% of companies chosen randomly from the S & P500 showed a positive growth over the same time period.

NPS is an unreliable number. Prepared by MA FDFgroup
NPS is an unreliable number. Prepared by MA FDFgroup

But even if this is the case, tracing NPS will not interfere, right?
Wrong. It turns out that an increase in the percentage of Supporters in relation to the percentage of Critics may create a false impression that the company is improving its position, but in reality this will not happen. In order not to delve too much into the numbers, consider only one example (Figures 1 and 2). NPS companies grew by five percentage points (from 15% to 20%) between 2015 and 2016. This increase could be considered a success. However, looking at the data, you can see that there are more positive reviews from the company at NPS of 15%.

NPS is an unreliable number. Prepared by MA FDFgroup
NPS is an unreliable number. Prepared by MA FDFgroup
Then what is the value of NPS?
From a business perspective, if NPS is well developed, correctly implemented and correctly interpreted, it can have advantages: it allows you to measure the mood of existing customers, and it can encourage a focus on attracting new ones. He is able to raise the debate.

Like Justin Bieber, NPS is not for everyone. Even if you are a NPS fan and have mastered the measurement process perfectly, it is imperative to look deeper. Of course, asking just one “magic” question may seem tempting, but it’s definitely not worth associating NPS with employee bonuses.

When you listen to customers, rely on a wide range of questions and focus on the aspects that your customers consider important when choosing the goods or services you offer, the question of “recommendation” may become part of the questionnaire, but not be the only measurable parameter.