Use of Net Promoter Score® in the cable television industry – placebo, off-label or remedy
Many cable television executives have embraced NPS, but how many have thoroughly read the original research paper [1] authored by Reichheld? How many know that the research paper says:
‘Although the “would recommend” question generally proved to be the most effective in determining loyalty and predicting growth, that wasn’t the case in every single industry.’
The research covered six industries. In the ‘local telephone and cable TV business’ industry, ‘would recommend’ did not predict relative growth. However, according to Reichheld, the growth rates of internet service providers were correlating with NPS. Has cable TV business changed since the study was published in 2003? Yes. Does it make NPS more relevant today? Perhaps, but we should discuss certain matters before we jump to conclusions.
The original research introduces NPS as ‘the one number you need to grow’ but what does NPS tell and what do you want to grow? As the research formulates:
‘Asking a statistically valid sample of customers “How likely is it that you would recommend our company to a friend or colleague?” enables you to calculate your net-promoter score: the ratio of promoters to detractors. Based on their responses on a 0 to 10 rating scale, group your customers into “promoters” (9–10 rating—extremely likely to recommend), “passively satisfied” (7–8 rating), and “detractors” (0–6 rating—extremely unlikely to recommend). Then subtract the percentage of detractors from the percentage of promoters”.
In other words, these two companies have the same score (15%) because ‘passively satisfied’ customers are simply ignored.
Company X: 55% are ‘promoters’ and 40% are ‘detractors’
Company Y: 20% are ‘promoters’ and 5% are ‘detractors’
Are these two companies experiencing similar issues? Partly yes, partly no. Let us assume that ‘detractors’ are calling the help desk twice as often as ‘promoters’. It certainly keeps the help desk in Company X busier than in Company Y, leading to higher OPEX. When Company Y decides to reduce product or service prices, NPS will likely increase; customers might be happy but profitability will decline. But was the original idea to find a correlation between turnover growth and NPS or between profits and NPS? I encourage readers to make their own judgement. The research paper is publicly available and free of charge; please see the references.
Numbers are interesting but academic. As Reichheld [2] acknowledges ‘imperfections’ in the analytics:
‘A number of perspicacious readers have noted that the statistical evidence provided in my book “The Ultimate Question” is imperfect. It does not provide proof of a causal connection between NPS and growth’.
The imperfections have been studied by scholars, who have been trying to replicate the analyses [3] or have examined the strengths and limitations of the net promoter score concept from a practitioner’s perspective [4]. These studies identify contradictions; but are these findings surprising? Not sure, if we take a look at what Reichheld told [2].
‘All we did was quantify this common sense in a way that made sense to business leaders—the target audience for my book. These practical leaders have little interest in advanced statistical methods. Frankly, we see little value in continued debate about cause versus correlation, time frames, or statistical methods.’
Am I saying that we should forget NPS? No. By asking ‘this one question’, operators can collect simple and timely data. The whole NPS ideology is relatively easy to implement through the entire organization. And although imperfections exist, rival alternatives might be more complex and do not necessarily bring better results. Therefore, my personal opinion is that the use of NPS in the cable television industry is something between off-label and remedy. However, when NPS is complemented with deep dive surveys like ‘what kind of events precede churn’, we might have reached the remedy level. Rating 7 may mean different things in different cultures, and forgetting to ask what ‘passively satisfied’ customers think might be costly.
Note: Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.
[1] Reichheld, F. F. (2003). The one number you need to grow. Harvard Business Review, 8112, 46-55.
[2] Questions About NPS – and Some Answers (accessed November 3, 2017), available at: http://netpromoter.typepad.com/fred_reichheld/2006/07/questions_about.html
[3] Keiningham, T. L., Cooil, B., Andreassen, T. W., & Aksoy, L. (2007). A longitudinal examination of net promoter and firm revenue growth. Journal of Marketing, 71(3), 39-51.
[4] Pingitore, G., Morgan, N. A., Rego, L. L., Gigliotti, A., & Meyers, J. (2007). The Single-Question Trap. Marketing Research, 19(2).
Arttu Purmonen
Arttu Purmonen
I joined Teleste in 1997 and engineered video processing and data transmission products. I have worked as engineer, project manager, product manager and business director but understanding customer perspective has always motivated me. It brought me to be responsible for system and technical marketing where my internal driving force and former experience can party together. See my LinkedIn.
