Net Promoter Score: The Power of Simple Metrics

The goal of a corporate "dashboard" should be to provide a quick snapshot of how the business is doing.   However, far too many firms create complex dashboards full of a wide variety of metrics.   They overload managers with information, and they don't get the results that they intended to achieve.

I was reminded of the power of simple metrics, as I read this article at Knowledge @ Wharton.  It discusses the concept of "net promoter score."   The concept is straightforward: How likely would you be to recommend my company, my product or my service to your friends, your colleagues or your family members?  Fred Reichheld and Rob Markey developed this concept, and their research suggests that a firm's net promoter score is highly correlated with a number of other key measures of financial performance. 

In this exchange between Markey and Wharton Professor Peter Fader, we see a fascinating discussion about Net Promoter Score.  The bottom line: We could enhance the accuracy of the Net Promoter Score, but it may not be worth doing so.  Every firm should keep this conversation in mind as it identifies and formulates key business metrics:

Markey: The truth is that the Net Promoter Score is designed to be radically simple, not because it is statistically better, but because it is statistically fine and that simplicity appeals to frontline employees. Even CEOs can understand it.  The designations of promoter, passive and detractor are based on one question. It's a simplifying construct that helps motivate and inspire people to want to create more promoters and fewer detractors. If you really wanted a statistically robust thing that was about the statistically accurate correlations, you would always go for more questions. But what we found is that there's about a 10% or 15% improvement by adding more questions in terms of statistical accuracy, but it tremendously degrades your ability to motivate the organization to take action because then you get into these debates: Which questions are part of the index? How are they weighted? I don't know, maybe that question isn't relevant for my business. Then you end up debating the score and not actually focusing on what matters, which is getting your customers to stay longer, buy more and tell their friends. 

Fader: Indeed, what you've just described is very consistent with the academic research, which shows that a richer, multidimensional scale can be 10% to 15 % better. But this one question -- this ultimate question -- really is good enough. In the academic community, it's kind of a half-full, half-empty [situation]. I'm a half-full kind of guy, saying, "Give me a measure that is good enough, one that managers can actually appreciate, understand, implement and spread throughout the organization." It raises the whole idea of measurement and understanding customer differences to a level that we've never seen before in any organization.