NPS (Net Promoter Score): You Manage What You Measure

We have a new revolution in brand measurement mentality – making this decade forever known as the Net Promoter Score (NPS) era.  Are there any marketing professionals that haven’t heard of NPS (invented by Fred Reichheld of Bain Consulting)?  If you haven’t, it’s time to get educated: http://www.netpromoter.com/np/calculate.jsp

NPS is a fantastic measurement for any company to use!  It is truly a revolutionary concept, consolidating lengthy brand survey results into a single trackable KPI that is easy to understand and intuitive.  Companies who focus on NPS improve the customer experience in order to enhance customer retention and increase brand reputation.  Because of this, NPS is an attractive metric for executives and helps our business decision makers quickly incorporate business analytics into their decision making.

NPS is Everywhere

One friend of mine told me his company even displayed NPS scores for the employee benefits hotline, separate from the NPS score for HR as a whole.  I see NPS-driven signs at hotels, at restaurants — even on the phone when calling my health insurance, they tell me that “a score of 8 is not good enough and if I can’t give them an 9 or higher, please contact their management so they can attempt to change my mind.”  NPS is absolutely everywhere!

So, if NPS is so wonderful, what’s the problem?  NPS is everywhere on everything, and has become synonymous with brand equity.  When having a conversation with people about brand health or brand reputation, NPS and brand are used interchangeably.  For example, take this question I got last week:  “Can you tell me what I can do to improve my business’s NPS?  I really want to improve the brand reputation this year.”

NPS is a great indicator of brand, but it is not actually brand – it’s simply one way of attempting to measure brand.   It is extremely popular due to its intuitive, straight-forward nature and how easy it is to track – but it is only one indicator of brand reputation and not brand itself.

Other Measurements of Brand

Before NPS and after NPS, there are hundreds of other ways of measuring a company’s brand – including many other types of survey methods that are still used today.  (Particularly noteworthy is that NPS is solely based on existing customers, where other metrics may capture potential customers who still can have a word-of-mouth influence on your brand — despite having never been your customer. These potential customers would be reflected in other brand awareness studies, but not in NPS.)

We can’t leave out the long-famous pricing test, discrete choice conjoint analysis — taking your product and put a competitor’s label on it, asking customers what they would pay for it versus the correctly labeled version.

There are even financial estimates of brand value, such as Top 100 Brands which attempts to quantify a company’s brand equity from financial evaluations.

Lastly, just like survey results, brand equity measurements can be surmised from social media analytics.

Brand Measurements

My point is that valuing a brand is difficult and complicated, and multiple approaches exist.  The multitude of methods may provide differing results at the same time.  No one single method of measuring brand is right — all are attempting to give a company indications of an underlying brand value that is very difficult to measure — and NPS is just one of those indicators.  Understanding what is really happening is where skilled analysts come in, to help business decision makers get a clear picture.

For example, even companies with the exact same NPS score may have widely different brand values by other metrics — in 2008, Amazon and Google had the same NPS score (73), but in Interbrand’s Top 100 Brands for that year Google was ranked 10th and Amazon was way down the list at 58th.

Optimizing NPS is not optimizing Brand

Sales compensation is often an indication of revenue or profit margin numbers, yet sales compensation is not perfectly correlated with revenue or profit margin numbers — as most sales managers know all too well.  Changes in sales compensation plans are managed very closely because individuals can game the system,  using unintended means of maximizing their sales compensation number that don’t result in a matching increase in sales for the company.

This can also be applied to NPS — there are methods of optimizing NPS scores that may not increase the overall brand equity of a company.

When a window installer says, after finishing, “In a few days, you’ll be given a survey and if you can’t give me  9 or 10s on all the questions, would you allow me to change your mind now?” is he really going to make a difference to the company’s brand?  Do you think that hanging up a sign in your hotel or dry cleaners that says “Giving us a 8 on our survey is not good enough. Talk to our management if you can’t give me an 9 or better” is optimizing your brand?  Really?  How is this impacting your brand any more than hanging up a sign that says – “Not fully delighted with your experience? Talk to management so we can help”?  The first sign, which calls out survey numbers specifically, will indeed have a much greater impact on your NPS score — but it won’t impact your brand equity any more than the second sign.

In addition, NPS is more heavily weighted towards customer service metrics than other brand measurements. My research  showed that NPS is more heavily correlated to (and therefore likely influenced by) customer support than the other brand metrics measured.   If you choose to use NPS as your company’s only method of measuring brand equity, it could result in your emphasizing customer service over other factors.  If an upscale jewelry company only measures NPS , it may work to further improve its already fantastic customer service – but may overlook billing issues that are keeping some customers from returning.  Even more so, these billing issues could be relatively easy to mitigate, providing a larger ROI than improving the already great customer service.

Finally, looking only at NPS could also limit you to only considering your existing customer pool –which may be acceptable for some mature businesses that already own a large piece of the market,  but could be extremely limiting for others.

So, the plan to improve brand reputation may be different than the plan to improve NPS.  Don’t get me wrong – it is a good idea to attempt to improve NPS – just remember NPS isn’t the same thing as brand equity. NPS is just one of many ways to measure it.  

What is the Marketing World Coming To?

“What is the marketing world coming to?” exclaimed my friend at our lunch conversation after reading the article on Target’s modeling approaches that identified a teenage customer as pregnant before her father even knew.  He was disturbed at how much information companies would know about him and felt his privacy was being invaded.

“Isn’t it wonderful?”  I replied, honestly excited at the level of information that marketing scientists like myself now have access to and all that we could do with it.  I truly found the Target story exciting and encouraging to my profession, unlike my friend, who was disgusted.

We went on to have a very interesting debate about how both Amazon sending him book and video recommendations and Google returning more accurate results based on his preferences are helpful, but somehow, targeting for other things such as knowing you are considering a kitchen remodel or might soon be registering for a wedding was crossing some line for him.  I think since it’s such a new technology, most people don’t understand how it is done, and many are unaware that it could even be done in the first place – so consumers find it alarming.  As it becomes more common, it will eventually be expected and appreciated.

I didn’t even bring up that I believe that soon, colleges will look to personality and intelligence profiling from social media in evaluating college applications.  They could go so far as to perform facematching to see if you’re a party child or if you really did spend all year helping homeless puppies get adopted like you wrote on your essay.   Another scary thought is that life insurance companies could base premiums off of lifestyle details that customers don’t know they’re providing.  As one example, life insurance companies could use location information from your cell phone, tweets, or photos, upping your premiums if you’ve gone too often to that “bad-for-you” BBQ restaurant. Of course, the flipside is that people who were actually living healthily would have below-average insurance premiums costs… but we were eating lunch at one of those BBQ places.

My friend decided to swear off facebook, free email programs, turned off location service on his phone, quit his frequent purchaser clubs, and even removed his tolltag from his car – all just to avoid the prying eyes of us data scientists.

As I did with him, I beg you to not consider this some evil plan of the marketing industry.  All of these new modeling techniques could potentially be beneficial to you too!  Imagine walking into a new bakery for the first time, and they already know what dish you will like the best — and despite that they have an award-winning soup, they know you prefer spicier soups and steer you to a delicious sandwich, just by knowing what you usually buy at your local grocery store.

Think about when you are in the market for a new car and commercials come on about a car that you are considering – and how you actually stop and watch the commercial instead of walking out of the room or fast-forwarding through it.  You are in fact interested in a potential product and want to hear the messaging to see if it is worth purchasing.  In this new world, companies who sell cars will know you’re in the market and are concerned about gas efficiency, so you’ll see website ads that show you details on how this car’s MPG compares to other cars in this sector, giving you the information you need to make a decision, all without you having to spend time on research or go out of your way to let sellers know you’re in the market.  This saves you TIME.  It also means many of those meaningless annoying commercials will be replaced with ones that talk about purchases you’re actually considering.

Another potential use for this type of modeling would be to identify medical risk factors based on where you’ve been and conditions you’ve experienced. By considering this information as part of your medical history, doctors may be able to more quickly diagnose conditions, or alert you to potential health risks — offering more targeted testing, or telling you things to look out for.  Take this hypothetical:  Some very unusual but potentially lethal virus has shown up from a patient who was at the same mall as you on Saturday (which both you and the virus infested patient were tagged as having been at due to credit card purchases).  In order for this virus to take hold, it needs darkness and you tweeted about going to the movie theatre afterwards.  Some futuristic doctor may contact you and tell you to be on the lookout for certain symptoms as your location history indicates you are at a higher risk of getting this disease.

The real beneficiary of this modeling is of course the companies who are marketing.  Targeted marketing has always had the best return on investment.  Modeling improves a company’s targeting, thereby minimizing spend on people who are not interested — they don’t waste money on people who were not going to purchase in the first place.   The money saved by not advertising to these uninterested people alone will justify this type of modeling and ensure that it continues.

However, there are some other potential gains for companies.  Companies will benefit from more accurately valuing their customer in terms of where to focus sales and marketing efforts, as models will allow you to better weight customers who are more likely to purchase, will spend more money, or will have a greater influence via word of mouth

Eventually, companies will begin to change their messaging to more granular subsets of consumers – emphasizing specific features based on the customer’s main drivers in the purchase. Continuing the car example, one customer may be more likely to purchase if safety features are emphasized, while another customer will prefer to see the beauty of the design — and still another wants to know how the product compares to competitors in terms of maintenance and warranty.  Each of these are different customers who may all be considering the same product for different reasons and will need their value system to be catered to, to encourage the purchase.  If customer desires are modeled properly, this will deepen the return of the marketing dollars.

We could even go a step further: instead of different messages about the product, differentiate the message delivery as well.  A company may know that one customer likes slapstick humor and serves up ads that will resonate with that customer, while a different customer prefers to hear a deep-voiced man describe the awards the product has received – and another is compelled with emotional imagery that help him feel connected with the product.

Like it or not, target marketing based off of the information you purposely or unintentionally provide is happening right now and will advance significantly in our lifetimes.  For those of you like my friend, who finds it creepy, companies will just need to be a bit more discreet about why we are targeting you.  ;)