Some companies are starting to turn away from or at least reduce their reliance on the NPS, the highly popular decade-old customer loyalty metric created by Bain & Company. The NPS, which predates the advent of the social web and its instant Like-ability, is culled from the responses to one basic question: "What is the likelihood that you would recommend Company X to a friend or colleague?" Respondents answer on a scale of 0-10, landing themselves in one of three categories. Promoters (10 and 9) are "loyal enthusiasts who keep buying from a company and urge their friends to do the same." Passives (8 and 7) are "satisfied but enthusiastic." Detractors (6 and lower) are unhappy customers. Bain derives the NPS by subtracting the percentage of detractors from the percentage of promoters.
Simple, right? It's too simple, Jason Faria, director of customer service at the flash online retailer Ideeli, said in a press release. Instead of relying on the NPS, Ideeli now uses the Word-of-Mouth Index (WoMI), the "next-generation NPS" launched in May by the customer experience analytics company ForeSee. "WoMI eliminates overstated detractors and has allowed us to concentrate our efforts on areas where we'll get the greatest return," Farsi said.
In its research, including 21,000 consumer surveys conducted via panel, ForeSee said it found that the NPS vastly overstates detractors. For example, detractors for the 100 largest brands in the US (as identified by Interbrand) are overstated by 299 percent on average. The WoMI measure gets around this problem by supplementing the single NPS question with one more: "How likely are you to discourage others from doing business with this company?"
This supplemental question makes all the difference, ForeSee CEO Larry Freed contends in a new report (registration required). "By asking questions that are focused on both the positive and negative word-of-mouth reviews, WoMI more accurately represents the difference between the proportions of consumers who report being highly likely to promote and those who are highly likely to detract via word of mouth."
ForeSee found the detractor overstatements by evaluating NPS metrics against its "likelihood to discourage" rating. In some cases, the NPS misstated brand detractors by 1,000 percent of more, according to ForeSee's research -- for example, there were overstatements of 1,700 percent for Heinz, 1,450 percent for Visa, and 1,050 percent for Samsung.
In the report, Freed puts this in practical terms:
Many executives use NPS as a KPI for evaluating investments and other business decisions. If an executive believes 30% of his or her customer base is made up of active detractors, but really only 10% of customers are active detractors, then the executive may very well invest significant resources into trying to "convert" detractors who simply do not exist.
This sort of situation helped swayed Nikon. "Unlike NPS, WoMI enables us to clearly understand our ROI. WoMI helps us have 'AHA' moments," Mario Castano, Internet and e-commerce technology manager at Nikon, said in the press release. The WoMI also makes information more useful, he said.
As I think about the NPS vs. WoMI, I can't help but to recollect All Analytics Community Editor Noreen Seebacher's recent post about the abysmal customer service she experienced when trying to get her Dyson vacuum fixed. In her moment of frustration, she turned from somebody who would recommend this company to somebody who publicly expressed her outrage with it. It doesn't get more discouraging than to tweet, "DYSON SUCKS!!!!!"
Now that consumers can express their opinions about companies and products so quickly and easily on the social web, I would agree with ForeSee that it's time to rethink our reliance on the overly simplistic NPS. But is the WoMI the answer? I think it's a step in the right direction, but I'm still left wondering whether there's any equation capable of addressing the social moment and effectively bottling it up in a usable metric. Your thoughts?