What Not to Do With Net Promoter

Before leaping onto the net promoter bandwagon, it's worth taking a look at how others fall short and waste their money

The "net promoter" concept is deceptively simple and potentially very powerful. You don't need a PhD in quantitative methods to understand it (see BusinessWeek.com, 1/30/06, "Would You Recommend Us?"). In fact, everyone in your company can grasp this approach to measuring customer loyalty and linking it to company growth: How likely are your customers to recommend you to their friends and colleagues? Subtracting detractors (those who aren't likely) from promoters (those who are) gives you your "net promoter score," which Fred Reichheld, author of The Ultimate Question: Driving Good Profits and True Growth, writes is the "single most reliable indicator of a company's ability to grow."

Like IQ, the net promoter score (NPS) is an indicator of potential, and like IQ, NPS isn't meaningful unless it's put to work. Net promoter, or any other loyalty measurement for that matter, is only useful if you can do something with the results. You must be able to take action on what you learn to make lasting improvements.

I received two "ultimate question" surveys just over the last month from Charles Schwab (SCHW) and TiVo (TIVO). Some companies, like Mellon Investor Services and GE (GE), are getting it right, while others have missed it completely. Turning the score into action is precisely where many net promoter projects stumble. How do they go wrong?

1. Not thinking strategically enough

Net promoter is designed to change the way a company thinks about its customers. It isn't merely about customer loyalty; it is a force for business transformation, providing a single metric that every division, department, or individual in the company can be held accountable for. Yet many net promoter projects today originate at the department level without executive sponsorship. From that position, they are powerless to drive company growth. These projects tend to simply swap an old customer satisfaction question with a new one. And the results, not surprisingly, are no better than those from other satisfaction/loyalty initiatives.

2. Ignoring the customer life cycle

No one would survey 5-year-olds and 50-year-olds, then mix the data without respect to respondent age. In effect, that is what many net promoter initiatives do by overlooking what I call experiential demographics. Customers at various points in their life cycle have vastly different experiences. Knowing that long-term customers—those who have been through several product generations—are weaker promoters than new customers implementing your product for the first time gives you intelligence you can act on. Did the customer just attend one of your user events? Did she recently call customer support? Did she return a product last week? Understanding the immediate customer context helps you interpret and leverage net promoter results, leading to products, services, pricing, or support that resonate with particular customers and reinforce the relationship.

3. Acting too slowly on insight and intelligence

Customer love is conditional. When it starts to change, you have to act quickly. Unfortunately, many organizations treat net promoter like a routine checkup, sampling customer loyalty with surveys once or twice a year. This approach takes years to reveal trends and dangerously delays cures. Actionable data comes from soliciting regular feedback to provide a nearer-to-real-time monitor of customer loyalty.

Some people resist net promoter because they don't see how just one question can give you enough data to act on. At the aggregate level, they may have a point. NPS shows the big picture; it tells you generally where you are and how far you have to go. Actionable data, though, comes from diving into the details. You have to get the details of individual customer responses into the hands of the people who can interpret it and make change happen. Acquiring these details requires one-on-one follow-up calls and focus groups to fully understand your detractors and promoters.

4. Being distracted by analysis

Like any traditional loyalty project, net promoter initiatives get hung up slicing and dicing the numbers in different ways and looking at them from every angle. The project objective is to get information into the hands of people who need it so that they can act, but too much analysis creates confusion about what to do and leads to paralysis. A minimalist approach works better—keep the focus on what you need to know to make a change. Before you do more research or ask additional questions, know what you'll do with the results.

5. Discarding what already works

Some companies get so excited about net promoter that they are ready to throw customer satisfaction surveys out the window. In reality, net promoter and traditional customer satisfaction disciplines don't have to compete and there doesn't have to be a loser.

Sending the one-question net promoter survey to all customers is likely to get a higher response rate than the typical lengthy customer satisfaction poll. Then you can leverage proven satisfaction methodology by following up on selected groups of promoters and detractors to acquire the detail necessary for developing specific action plans.

"Net promoter was the metric we had been seeking to tie customer loyalty to top-line revenue growth," says Barton Hill, CMO of Mellon Investor Services, an investor services firm based in Jersey City, N.J. "Customer satisfaction data alone weren't proving to be actionable. Taking the net promoter score and using it to drive how we direct additional research provides the lever for action we had always been looking for."

CEOs are paying attention to net promoter because it fills the void that customer satisfaction surveys alone have not been able to bridge—connecting loyalty to the bottom line and enabling business transformation. But asking the question and doing the arithmetic is only the prelude to a successful net promoter project. Getting from the NPS to actions that make a difference takes rigorous discipline.

Before it's here, it's on the Bloomberg Terminal.