A Longitudinal Examination of Net Promoter and Firm Revenue Growth

AMA Publishing
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Timothy L. Keiningham, Bruce Cooil, Tor Wallin Andreassen, & Lerzan Aksoy

Executive Summary
In December 2003, noted loyalty consultant Frederick Reichheld introduced a new loyalty metric, Net Promoter. This is a metric derived from survey responses to a recommend-intention question. Respondents who provide a rating of 9–10 are classified as "promoters," and respondents who provide a rating of 6 or lower are classified as "detractors." Net Promoter is calculated by subtracting the proportion of a firm's "detractors" from its proportion of "promoters" (i.e., Net Promoter = Promoters – Detractors). Reichheld (2003) states that compared with other survey-based questions asked of customers, this score is the most effective across industries at predicting a firm's growth. Furthermore, it has been specifically proposed that this metric is superior to the American Consumer Satisfaction Index (ACSI) in predicting revenue growth. As a result, managers of some of the world's most well-respected firms (e.g., General Electric, Microsoft, T-Mobile, Intuit, American Express) encompassing a large number of industries have adopted the Net Promoter metric.

Net Promoter has sparked considerable debate about whether it is truly superior to other more commonly used satisfaction and loyalty metrics. The evidence regarding the relationship between Net Promoter and firm revenue growth has not been subjected to rigorous scientific scrutiny and peer review. Indeed, no researchers have attempted to replicate the research methodology on which Net Promoter is founded. Unfortunately, the only longitudinal analysis attempting to examine the relationship between Net Promoter and business outcomes (Morgan and Rego 2006) has misunderstood the data fields from which Net Promoter was calculated, thus rendering the results questionable.

The current research fills this void by providing the first cross-industry, longitudinal examination of the association between Net Promoter and firm revenue growth and seeks to replicate Reichheld's (2003) methodology. This research (1) employs longitudinal data from 21 firms and 15,500-plus interviews of the Norwegian Customer Satisfaction Barometer to replicate the analyses used in Net Promoter research and (2) replicates a subset of the Net Promoter data that Reichheld (2006) used, allowing for an apples-to-apples comparison of Net Promoter with the ACSI.

The authors' replication using the Norwegian Customer Satisfaction Barometer data does not support the assertion that Net Promoter is the single most reliable indicator of a company's ability to grow. There is no real indication that average levels of any of the satisfaction/loyalty metrics studied are significantly related to the relative change in revenue within industry when using Reichheld's (2003) methodology. Furthermore, the authors' comparison of Net Promoter with the ACSI (using data that Reichheld [2006] presented) shows that Net Promoter is not superior to the ACSI for the data under investigation, even though these data represent exemplars of the relationship between Net Promoter and growth. The authors investigate alternative explanations as to the discrepancy between their results and those of Reichheld (2003), including data quality, question wording, scale point differences, and cultural differences, and deem them to be unlikely.

Thus, this research fails to replicate the assertions regarding the "clear superiority" of Net Promoter in comparison with other measures. This research demonstrates the necessity of rigorously and scientifically testing measures reported to be predictive of business outcomes before their widespread adoption.

Biography
Timothy L. Keiningham is senior vice president and head of consulting at Ipsos Loyalty. He is the author of several management books and numerous scientific papers. His most recent book, Loyalty Myths (with Vavra, Aksoy, and Wallard; John Wiley & Sons 2005), exposes the fallacies of most of the conventional wisdom surrounding customer loyalty. He has received best-paper awards from Journal of Marketing and Journal of Service Research and has received the Citations of Excellence "Top 50" award for 2005 from Emerald Management Reviews. Another article that he coauthored was a finalist for best paper in Managing Service Quality. Tim also received the 2006 best-reviewer award from Journal of Service Research. His articles have appeared in publications such as Journal of Marketing, Journal of Service Research, Journal of Relationship Marketing, Interfaces, Marketing Management, Managing Service Quality, and Journal of Retail Banking. He serves on the editorial review boards of Journal of Marketing, Journal of Service Research, Journal of Relationship Marketing, and Cornell HRA Quarterly.

Bruce Cooil is Professor of Management in the Owen Graduate School of Management at Vanderbilt University. His research interests include the adaptation of grade-of-membership and latent class models for marketing and medical research, qualitative data reliability, large-sample estimation theory, and extreme value theory. He has also written and consulted on models for mortality, medical malpractice, and automobile insurance claims and indemnities. His publications appear in marketing, statistics, and medical journals and have received more than 12,000 citations. For his collaborative work in marketing, he received the Lehmann Award and has been a finalist for the Green Award. At Owen, he received the Owen Dean's Award for Research Productivity (2004) and Research Excellence (2003), and he was elected Outstanding Professor by the Executive MBA class of 2004. Cooil earned a BS in Mathematics (with honors) and an MS in Statistics from Stanford University. His PhD (Statistics) is from the Wharton School at the University of Pennsylvania.

Tor Wallin Andreassen is an associate professor and chair of the Department of Marketing at the Norwegian School of Management. He is the founder of the Norwegian Customer Satisfaction Barometer and director of the Forum for Market Oriented Management at the Norwegian School of Management. Dr. Andreassen is on editorial the review board of Journal of Marketing, Journal of Service Research, and International Journal of Service Industry Management, and his work has been published in leading journals, such as Journal of Service Research, Journal of Economic Psychology, European Journal of Marketing, and International Journal of Service Industry Management. Dr Andreassen has published several books, including Service Heroes (with Fred Selnes), Service Management, and Customer Relations.

Lerzan Aksoy is Assistant Professor of Marketing at Koç University in Istanbul, Turkey. She is coauthor of the book Loyalty Myths (with Keiningham, Vavra, and Wallard; John Wiley & Sons 2005) and is coeditor of the forthcoming book, Customer Lifetime Value (with Keiningham and Bejou; Haworth Press 2006). The article "The Brand–Customer Connection," (with Timothy L. Keiningham, Tiffany Perkins-Munn, and Terry G. Vavra) was selected by Emerald Management Reviews as one of the top 50 management articles of 2005. Her article "Does Customer Satisfaction Lead to Profitability? The Mediating Role of Share-of-Wallet" was a finalist for best paper in Managing Service Quality. In addition, her article "Should Recommendation Agents Think Like People" was a finalist for best paper in 2006 in Journal of Service Research. Her articles have been accepted for publication in journals such as Journal of Marketing, Journal of Service Research, Sloan Management Review, Journal of Relationship Marketing, International Journal of Service Industry Management, Managing Service Quality, and Marketing Management. She serves on the editorial review boards of Journal of Relationship Marketing and International Journal of Service Industry Management and is an ad hoc reviewer for Journal of Marketing, Journal of Service Research, International Journal of Service Industry Management, and Cornell HRA Quarterly.

Journal of Marketing, Vol. 71, No. 3, July 2007
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