One Question, And Plenty of Debate

It is a hot business idea of the moment, a growth formula embraced by General Electric Co., American Express Co., Progressive Corp. and many others.

But a growing chorus of skeptics question the value of the “net promoter” concept advocated by consulting firm Bain & Co., market researcher Satmetrix Systems Inc. and author Fred Reichheld.

Net promoter is a way to gauge customer attitudes toward a company or brand, based on a single question: “How likely is it that you would recommend us to a friend or colleague?” Customers answer on a zero-to-10 scale. Nines and 10s are classified as “promoters,” sevens and eights as “passives,” and sixes and below are “detractors.” To calculate a net-promoter score, subtract detractors from promoters.

Mr. Reichheld, a director emeritus at Bain, urges managers to survey customers regularly, track net-promoter scores and focus on improving them. “It’s one number you need to grow,” he writes in “The Ultimate Question,” a book published this year that briefly topped The Wall Street Journal list of business best sellers.

But critics say Mr. Reichheld’s formula is simplistic and misleading and that his claims are vastly overstated. In the most stinging critique, three academic researchers and an executive of another market-research firm say they tried — and failed — to replicate Mr. Reichheld’s finding that net-promoter scores are better indicators of revenue growth than other customer-satisfaction measures. For two of the industries cited in Mr. Reichheld’s book — airlines and personal-computer makers — the authors say a different customer-satisfaction measure better explains corporate-growth patterns than does net promoter.

“When we use his data, net promoter doesn’t come out to be the best predictor” of growth, said Tim Keiningham, senior vice president of the Ipsos Loyalty unit of France’s Ipsos SA and lead author of the study, to be published next year in the Journal of Marketing.

Other researchers also are troubled by Mr. Reichheld’s claims. “Does this thing predict business performance or not?” said Neil Morgan, an assistant professor of marketing at Indiana University’s Kelley School of Business. “There is no evidence that it does.”

Net promoter’s popularity makes this more than an arcane statistical debate. GE Chief Executive Jeffrey Immelt uses it to measure GE’s operating units and says it is “embedded” in GE’s culture. German financial-services giant Allianz SE displayed its mediocre score — more detractors than promoters — to investors in July, and vowed to improve. Allianz pops the question to customers at every opportunity and uses the results to evaluate managers and award bonuses.

In the book, Mr. Reichheld claims that, on average, a 12-point increase in a company’s net-promoter score doubles its growth rate. A Bain spokeswoman said the firm no longer touts that statistic, stressing instead that companies with strong net-promoter scores tend to grow faster than others in their industry.

In an interview, Mr. Reichheld said the links between net promoter and corporate growth are “not numbers I have focused on a lot in the last several years.” He said net-promoter scores aren’t “a forecasting device” that predicts growth. Mr. Reichheld said he hasn’t read Mr. Keiningham’s study, a copy of which was provided by The Wall Street Journal, and couldn’t respond to its critique.

More generally, Mr. Reichheld said his critics are missing the forest for the trees. Net promoter is effective, he said, because it forces top executives, and other managers, to focus on creating happy customers. Too much market research is based on complicated formulas and long questionnaires that few customers complete, he said. The simplicity of net promoter — one question, one number to track — rankles market researchers vested in other approaches. “It’s radical. It does threaten the status quo,” Mr. Reichheld said.

The controversy erupted at an industry conference last month, where critics questioned Mr. Reichheld after a speech. “Wow! I can’t believe how much hostility surrounds the Net Promoter concept,” Steven Nicks wrote on his blog at the conference, comparing the debate to a “holy war.” Mr. Nicks is a co-founder and executive vice president of Phelon Group, a Sunnyvale, Calif., customer-care company, and a net-promoter fan.

It isn’t unusual for trendy business ideas to generate debate, said Thomas Davenport, a management professor at Babson College. Academics at first, and later business executives, also came to question once-popular management concepts such as re-engineering, Total Quality Management and the Six Sigma quality-improvement program.

Critics said they are trying to protect executives racing to adopt the net-promoter concept. “What concerns me is the corporate boardroom is probably misinterpreting the importance of this,” said V. Kumar, a marketing professor at the University of Connecticut School of Business and author of another soon-to-be-published study questioning the link between net-promoter scores and corporate profits.

The criticism doesn’t appear to be influencing executives. One powerful endorsement: BearingPoint Inc., a McLean, Va., consulting company that is something of a Bain rival.

BearingPoint began testing net promoter in 2002 and last year adopted the tool companywide, said Ira Entis, vice president of global marketing. This year, bonuses for BearingPoint’s top 750 executives will be based in part on the net-promoter scores of their clients, Mr. Entis said.

 

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