Net promoter scores may be misleading

The net promoter score, an increasingly popular measure of customer satisfaction, may not be an effective metric the way most organizations use it, according to The Wall Street Journal.

The measure is based on a one-question survey: "How likely are you to recommend the company's product or service to a friend?" The percentage of customers who answer with a score of 0 to 6 out of 10 is subtracted from the percentage who answer 9 or 10 out of 10. Those who answer 7 or 8 are excluded. The score is widely used by companies like Best Buy, American Express and Target, as well as many hospitals and healthcare companies as they focus on patients as consumers.

Citations of net promoter score on earnings calls of S&P 500 companies has quadrupled in five years, according to WSJ. However, studies show that the score is no better at predicting revenue or consumer behavior than any other survey. The methodology for calculating scores also requires large sample sizes, and many companies do not share margins of error. The score can also be easily manipulated, making it difficult to derive any certainty from the score, according to the report.

In fact, Fred Reichheld, a consultant from Bain & Co., who invented the net promoter score, told WSJ he thinks it's "completely bogus" that companies are using it to determine performance and bonuses. Bain & Co. believes the score is beneficial but should be used as a simple benchmark and an easy way to follow up with customers. 

Read more here.

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