Theories of Marketing Net promotor score

Ed Peelen

Ed.Peelen@icsb.nl

1

Loyalty

Behavioral and attitudinal

Driving top line growth (turn over)

Driving profitable growth

2

Customer Loyalty: top line growth (p48 Reichheld)

0 1 2 3 4 5 6 7Year

An

nu

al

cu

sto

me

r p

ro

fit

Price premium

Referrals

Cost savings

Revenue growth

Base profit

Acquisition cost

Source: Reichheld

Current practice

Focus on retention:

relates to profit, not growth

switch costs and retention (lock in effect)

Focus on customer satisfaction:

ACSI (200 cy): no strong correlation with

outstanding sales growth; outlier: K-mart

(sales drop)

Dealer: no relationship with growth and profit

4

Too import not to

be measured

The ultimate question

How likely are you to recommend our

organisation to a friend or colleague? (on a

scale of 0 to 10)

© ICSB Marketing en Strategie

0 1 2 3 4 5 6 7 8 9 10 Extremely

likely Not at all

likely

What is the primary reason for your rating ?

Research

N (Q1, 2001): 400 companies, >12 industries,

15,000 responses – ultimate question (2 yrs)

Desk research: revenue growth data (3 yr

period; 2 yr nps was measured and one prior yr)

Analysis: Δnps versus revenue growth

6

Keiningham et al: three target industries; nine other

industries small sample size

7

NPS and firm value

50 organizations, different industries:

average growth rate doubled by improving NPS

with 12 points

Median NPS for 400 service industries: 12%;

highest scores >= 80%

Keiningham

NPS

Even being presented to investors

Reichhelds research not been subject to

rigorous scientific scrutiny and peer review

Morgan and Rego (2006): different data and

miscalculation

This study: NCSB (Norway), 21 firms, 15,500

response (intention, recommendation,

satsfaction) + subset of Reichheld’s dataset

9

Critics Reichheld: current research

1% increase in American Customer Satisfaction

Index (ACSI) (0-100 scale) correlates with $275

million increase in the firm’s value (1.016%, on

average, measured by Tobin’s Q)

Tobin’s Q = Market

value/Asset value

Further: Gruca and Rego; Fornell et al; ACSI correlates with Casf Flow, Shareholder

Value by reducing variability

© ICSB Marketing en

Strategie

HIER NOG EEN KREET

Managerial relevance

X is a company to recommend X is a company to return to

Managerial relevance

Elements that promotors appreciate

Root cause analysis

Relate to processes

Process metrics

Process owners

Improvement programs

One study…

Financial sector US

The difference between the intention to recommend and the actual behavior: 70% says they will; 44% actually does

42% of the recommendation attempts is effective: a prospect will come in

77% of the prospects becomes a customer

Kumar, Petersen, Leone, 2010