The research industry is rife with maxims meant to express a general truth about society.
One that always stuck in my head was “if you want to know how a person feels, just ask them.” This maxim is basically the campaign speech for the Net Promoter Score (NPS).
As a refresher, NPS relies on asking your existing customers just one simple question:
How likely are you to recommend our company, product, or service to a friend or colleague?
The results of this question are translated to a customer loyalty score, ranging from -100 to +100. The higher the score, the better. SurveyMonkey reports the average global score is +32.
NPS adds value. There’s no question about it. As just one question, it’s super simple. No one would argue this is onerous on your customer.
Also, it’s easy to benchmark with this metric. So, you can easily know how loyal your customers are compared to your competitor’s.
And the icing on the cake? Research suggests a link between your NPS and organic growth! Bain & Co. suggest, “Net Promoter Scores explained roughly 20% to 60% of the variation in organic growth rates among competitors.”
Overall, I’m a fan of NPS. But I also believe NPS has its limitations.
It is directional in nature. So, while it provides a pulse on customer loyalty, it misses important nuance. The world is far too complex to rely on NPS to singularly measure business health.
Because NPS is prevalent and fairly easy to measure, we tend to over-inflate its importance. We tend to use NPS as the key metric to measure our business and fail to consider running a more exhaustive analysis to determine drivers of growth.
And while there is a rough correlation between NPS and revenue growth, it’s still just a proxy measurement. As I’ve discussed in detail, proxies have limitations.
So, what are the limitations of NPS? Two critical ones immediately pop to mind.
First, NPS never answers the “why” question. Why do my customers feel a certain way about my product or company? Understanding why is necessary to create change.
If we knew that a product experience, type of marketing campaign, or set of sales messages was the reason for a decrease in loyalty, we’d do something about it. When you understand why your customers have a certain perception, you can put a strategy in place that has a chance to change that perception.
Second, NPS reflects a point in time; it is not predictive. It won’t predict your customer’s next move. If a customer tells you they are likely to recommend your product to a colleague, that in no way obliges them to open their wallet.
So, while NPS provides a snapshot of business health, it fails to predict revenue growth. I’d argue this is why we are all in business in the first place. We want to grow revenue not just ensure our customers like us.
Luckily, there are far better ways to understand your customers’ propensity to spend money with you. For instance, you could correlate customer spend habits with other things you can influence (e.g. customer experience, product features, onboarding, etc.).
As it happens, if you’d like to augment—and supercharge—your NPS score, Tingono can help. Our solution both 1) gets to the why and 2) is predictive. We’re correlating customer spend habits with the experiences you control, using past customer behavior to predict likely future behavior.
And so, it only seems apropos to close with another market research maxim. "If you want to understand today, you have to search yesterday."
Your best predictors of customer spend are waiting to be found in your historical customer data. Tingono puts this within reach and makes this simple.