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Should Financial Marketers Measure Net Promoter Scores?

Many bank and credit union marketers like the ease and simplicity of measuring net promoter scores. But do these numbers have any correlation with business performance? Or are there other metrics financial institutions should be measuring instead?

By Ron Shevlin, Senior Analyst with Aite Group

The value of Net Promoter Scores as a measurement of customer satisfaction is controversial and has been widely debated. The formula in theory — is straightforward enough: Take the number of customers who love you, subtract the number of customers who hate you, and ignore everyone else who feels indifferent. The resulting number is your “Net Promoter Score.”

According to the Net Promoter System website, there are a number of advantages to measuring Net Promoter Score (NPS):

1) Simplicity – surveys typically require just two or three questions

2) Ease of use – a company can conduct NPS surveys by a variety of methods

3) Quick follow-up – practitioners typically share customer feedback very quickly after it is received

4) Experience – thousands of companies across a variety of industries measure NPS

5) Adaptability – as an open-source method, NPS can easily be put to work in a wide variety of business settings.

Absent from this list, however, is any indication that tracking the metric produces, or is linked to, bottom-line benefits.

According to research conducted by The Financial Brand and Aite Group, there is evidence to suggest that, among financial institutions, NPS has no impact on- or correlation to business performance. Among the 169 banks and credit unions responding to the survey, one-third measure NPS.

NPS Users Underperform the Market

On average, NPS users increased checking account relationships from 2011 to 2012 by 4.1%, and saw a 5.3% increase in the number of consumer loans issued. In contrast, financial institutions that don’t measure NPS grew checking account relationships by 5.4%, and loans by 6.5% (see graph below). Among non-NPS users, one in four saw checking account growth in excess of 10% in 2012, compared to just 10% of NPS users.

net_promoter_score_loan_checking_growth_2012

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The differences between the two groups also extends to their expectations regarding growth for 2013. NPS users anticipate consumer loan growth of 6.3% in 2013, while other financial institutions expect 7.9% growth. For checking accounts, the gap in growth expectations is even larger — NPS users anticipate 4.0% growth in contrast to the 7.9% growth that non-NPS users expect.

net_promoter_score_loan_checking_growth_forecast

Certainly, measuring NPS is not the cause of subpar performance. But with the hype surrounding the metric, there is an expectation that using NPS leads to better bottom-line results.

Two More Anomalies About NPS Users

Net Promoter Score is a customer metric. It’s not an operational measure, nor does it apply to conversion rates, or the marketing or service effectiveness of dealing with prospects. NPS is touted to be a metric used to improve customer loyalty. If that’s the case, then why do just 9% of NPS-using financial institutions cite customer retention as a top three marketing priority for 2013? Why bother measuring NPS if customer retention isn’t that important a priority?

net_promoter_score_marketing_priorities

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NPS is often positioned as a key element of a firm’s “voice of the customer (VOC)” efforts. As a result, wouldn’t you expect NPS-using firms to place high importance on the use of survey data for marketing analysis purposes? But that’s not the case with half of NPS-using financial institutions. The difference in percentages between NPS-using financial institutions and other financial institutions who consider survey data to be very important is negligible.

net_promoter_score_users_value_survey_data

What Should Financial Marketers Measure?

The results of the 2013 Financial Brand Marketing Survey provides some evidence that financial institutions that measure Net Promoter Score don’t outperform the market, and, additionally, that their marketing actions aren’t always consistent with the Net Promoter philosophy.

This begs the question: If not NPS, then what should financial marketers measure?

The answer is certainly not a metric that relies on the periodic gathering of consumers’ attitudes. With the maturing of online and mobile technologies, it’s now feasible for financial institutions to track the behaviors of consumers that give financial institutions insights into current and future loyalty.

This is why I’ve proposed the use of a metric I call Referral Performance Score (RPS). Giving nod to the Net Promoter junkies who believe that customer referrals (i.e., word-of-mouth marketing) are important, the RPS looks at customers’ actual referral behavior, and not just their intentions.

In addition, though, the RPS takes into account changes in a customer’s own relationship with a provider. It’s great if a customer provides referrals, but if she isn’t growing her own relationship, then she’s not as good a customer who both refers and expands the relationship.

I can’t say that measuring RPS will improve an financial institution’s bottom line, but I can make a case for why it’s a superior metric to the Net Promoter Score.


Ron ShevlinRon Shevlin is a senior analyst at Aite Group, a Boston-based research and advisory firm serving the financial services industry. You can pick up a copy of Ron's latest book, Snarketing 2.0, at Amazon.com. The book is a balance of keen, entertaining observations loaded with educational and practical advice that doesn’t pull any punches. Ron is a regular contributor here at The Financial Brand. You can read more from Ron on his blog, or follow Ron on Twitter.

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Comments

  1. Interesting point!

  2. Interesting question would be whether FIs that subscribe to NPS do so because they believe they ‘need’ to measure customer satisfaction. In other words, since the survey was blind, you can’t correlate scores to results. Some institutions may be subscribing because they need help.

  3. Good point, Jim. The survey wasn’t completely blind — some respondents provided an email address in order to get a copy of the marketing analytics report I’ll be writing. But I haven’t looked at what percentage of NPS users provided an email address. And I doubt that I will. :)

  4. Ron,

    Weighing a pig doesn’t make it any fatter.

    I think you are mixing up your logical relationships here. Just because a company measures NPS doesn’t mean they use it to improve their business. Heisenberg excepted, there is no metric ever invented creates change simply from it’s measurement.

    However, there is plenty of evidence to show that companies that actually use the NPS approach to drive change in their business, rather than just measure the score, are successful. See here for a whole page of case studies:

    http://www.genroe.com/blog/net-promoter-score-success-stories-and-case-studies/984

  5. Grant Beuzeval says:

    The main point missed here is that most firms still only see NPS as a metric and do not take the required action to convert Detractors into Promoters (closed loop feedback) and root cause analysis to uncover systemic issues that are creating Detractors in the first place.

    Just being an “NPS User” doesn’t mean you are a customer centric organisation. According to Bain, NPS has evolved into Net Promter SYSTEM and is a management approach to customer centricty. If you’re analysis were to include “Net Promoter System Users”, then the results must be very different.

    Bain has done considerable work in tying bottom line profits to Net Promoter categories and some firms can even demonstrate the bottom line value of moving a customer from a 3 to a 4 on the scale of recommendation. Bain also urges organisations to link NPS tightly to financial reporting and report NPS whenever reporting financials.

    There are many great success stories from companies that use the NPS methodology as a foundation for creating a customer centric business and driving profits and future growth through authentic loyalty. The article is misleading.

  6. Adam –

    Thanks for commenting. You wrote: “Just because a company measures NPS doesn’t mean they use it to improve their business.”

    That leaves me wondering why a company would measure NPS if they didn’t think it was going to help them improve the business somehow.

    I’m familiar w/ the laundry list of firms that measure NPS and show an improvement in business performance. The causal connection is weak, in my opinion.

    I wish you could have been there at the credit union conference a few years back when the purveyor of NPS services basically admitted that measuring the score wasn’t that important.

    To PROVE that measuring NPS caused business improvement would require some kind of controlled test in which a business would split itself in two equal parts, do everything the same — EXCEPT measure NPS — and see what the results are.

  7. Larry Guayante says:

    So, if I get on the bathroom scale every morning and I fail to lose weight, then I should stop using the bathroom scale to measure weight loss. Got it!

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