The Loyalty Cure - Vanderbilt University

The Loyalty Cure - Vanderbilt University

AMA ServSig Doctoral Consortium Taipei 2013 National Taiwan University, Taipei, Taiwan July 3-4, 2013 Research Journey Our Investigation of the Net Promoter Score Lerzan Aksoy Associate Professor of Marketing FORDHAM UNIVERSITY Timothy Keiningham Global Chief Strategy Officer IPSOS LOYALTY

Lerzan Aksoy & Timothy Keiningham The Team Tor Wallin Andreassen Timothy Keiningham Professor of Marketing Norwegian School of Management Global Chief Strategy Officer Ipsos Loyalty Lerzan Aksoy Bruce Cooil

Associate Professor of Marketing Fordham University The Dean Samuel B. and Evelyn R. Richmond Professor of Management Vanderbilt University A Longitudinal Examination of Net Promoter and Firm Revenue Growth, Journal of Marketing, July 2007 2007 MSI H. Paul Root Award The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Customer Retention, Recommendation, and Share-of-Wallet, Managing Service Quality, 17 (4), 2007 2007 Outstanding Paper (Best Paper) Award

Linking Customer Loyalty to Growth, MIT Sloan Management Review, Summer, 2008 REALLY Know the Topic Timothy Keiningham Net Promoter Score Featured in the Harvard Business Review, MIT Sloan Management Review, and the book The Ultimate Question How to Calculate a Net Promoter Score Net Promoter asks one question, Would you recommend us to a friend or colleague? that customers answer on a scale of 0 to 10. Responses are grouped into three categories: Detractors, Passives and Promoters.

Subtract Detractors from Promoters and you have a Net Promoter Score. Likelihood to Recommend Not At All Likely 0 Extremely Likely Neutral 1 2 3 4 5

6 Detractors Promoters Detractors 7 8 Passives 9 10 Promoters

Net Promoter Net Promoter Is Sold As The Single Most Reliable Indicator Of Firm Growth Reichhelds Analysis Reichheld, in partnership with Satmetrix and Bain & Company, conducted both a micro (customer-level) analysis and a macro (firm-level) analysis as part of his Net Promoter research. Key Findings from Reichhelds Macro-level (Firm-Level) Analysis

Net Promoter is the single most reliable indicator of a company's ability to grow. Net Promoter links to firms relative growth rates within their respective industries Net Promoter leaders outgrow their competitors in most industries by an average of 2.5 times. A twelve-point increase in Net Promoter leads to a doubling in a companys rate of growth on average. The key finding of this research is that firms need only track Net Promoter if the goal is firm growth. Reichheld, Frederick F. (2003), The One Number You Need to Grow, Harvard Business Review, vol. 81, no. 12 (December), 46-54.

Satmetrix (2004), The Power Behind a Single Number: Growing Your Business with Net Promoter, Satmetrix Systems white paper Two Key Findings from Reichhelds Micro-level (Customer-Level) Analysis The likelihood to recommend question proved to be the top correlate to actual customer behavior 80% of the time (Satmetrix 2004). More explicitly, if customers reported that they were likely to recommend a particular company to a friend or colleague, then these same customers were also likely to actually repurchase from the company, as well as generate new business by referring the company via word-of-mouth. Recommend intention is the only variable needed to predict customers loyalty behaviors. Reichheld states, Interestingly, creating a weighted index based on the responses to multiple questions and taking into account the relative effectiveness of those questions provided

Reichheld, Frederick F. (2003), The One Number You Need to Grow, Harvard Business Review,2003). vol. 81, no. 12 insignificant predictive advantage. (Reichheld (December), 46-54. Satmetrix (2004), The Power Behind a Single Number: Growing Your Business with Net Promoter, Satmetrix Systems white paper Data Is King!!! We Obtained Data to Replicate the Micro-Level Analysis from a Large Market Research Firm

We examined data from a two-year study of over 8,000 customers of firms in one of three industries: retail banking, massmerchant retail, and Internet service providers (ISPs). Individual customer ratings of common satisfaction and loyalty metrics were monitored over two years. In the second year of the study, customers purchasing (retention and share-of-wallet) and recommendation behaviors were also tracked. Our Findings from the Micro-Level Analysis Customers future loyalty

behaviors are distinct (retention, share of wallet, and word of mouth). As a result, no single measure adequately predicted customers' future loyalty behaviors Finding Valid Firm-Level Multi-Industry Longitudinal Data for the Macro-Level Analysis Proved Difficult The American Customer Satisfaction Index (ACSI) does not ask a recommend intention question Fortunately, we were able to obtain equivalent data to that used by Reichheld

from the Norwegian Customer Satisfaction Barometer (NCSB) . We used 15,500+ interviews from the NCSB to replicate the macro-level analysis Our Findings from the Macro-Level Analysis No single measure did an adequate job of predicting firm growth. For example, Net Promoter was only best 2 out of 19 times! Possible Research Bias? We examined potential factors that could have

caused our results to differ, however, none appear plausible. Based upon our analysis, it is difficult to imagine a scenario whereby Net Promoter would be classified as the superior metric. Go the Extra Mile Timothy Keiningham How Can We Make and Apples-to-Apples Comparison? Without access to the raw data used by Reichheld, it is impossible to know with certainty if the

variables under consideration were examined fairly. There is, however, one opportunity to compare Net Promoter to one metric that Reichheld examined and criticizes: the American Customer Satisfaction Index (ACSI). Reichheld Specifically Targets the American Customer Satisfaction Index as Inferior in His HBR Article Our Ourresearch researchindicates indicatesthat that

satisfaction satisfactionlacks lacksaaconsistently consistently demonstrable connection demonstrable connectionto to actual actualcustomer customerbehavior behaviorand and growth. growth.This Thisfinding findingisisborne borneout out by

bythe theshort shortshrift shriftthat thatinvestors investors give giveto tosuch suchreports reportsas asthe the American Customer Satisfaction American Customer Satisfaction Index. Index.The TheACSI,

ACSI,published published quarterly quarterlyininthe theWall WallStreet Street Journal, Journal,reflects reflectscustomer customer satisfaction satisfactionratings ratingsofofsome some200 200 U.S. companies. In general,

it U.S. companies. In general, itisis difficult difficultto todiscern discernaastrong strong correlation correlationbetween betweenhigh high customer customersatisfaction satisfactionscores scoresand and outstanding outstandingsales salesgrowth. growth.

Reichheld Specifically Targets the American Customer Satisfaction Index as Inferior in His Book Some Somerecent recentevidence evidencethat thatthere thereisislittle littleconnection connectionbetween betweensatisfaction satisfaction scores scoresand andeconomic economicresults resultscomes

comesfrom fromthe theACSI ACSIitself, itself,whose whosedata dataused usedto to be bepublished publishedeach eachquarter quarterininthe theWall WallStreet StreetJournal Journal(under (underthe theheading

headingof of marketing, marketing,not notinvesting) investing)(The (TheUltimate UltimateQuestion, Question,p.p.85). 85). Reichheld States that Bain Research Shows a ZERO Correlation between the ACSI and Growth A ABain Bainteam teamlooked lookedatatthe thecorrelation correlationbetween

betweengrowth growthand and satisfaction, satisfaction,and andfound foundthere thereisisnone none..Reichheld Reichheld2004 2004 An AnR-square R-squareofof0.00 0.00 indicates absolutely indicates absolutelyno no

correlation correlationwhatsoever! whatsoever! The TheACSI ACSI Frederick F. Reichheld (2004), Net Promoters, Bain Audio Presentation, (February 24), An Opportunity to Compare Net Promoter and the American Customer Satisfaction Index Reichheld presents charts for three industries that are also tracked by the ACSI: airlines, life insurance, and computers. Data showing the relationship between Net Promoter scores and growth were

reconstructed based upon scatter-plots of the data featured in the appendix to The Ultimate Question (Reichheld 2006, pp. 192-194). To insure accuracy, the tables were scanned, and the corresponding graphics imported into a charting software package where they were used as background images. As a final check of the data, the R-square of the recreated data was compared to the R-square reported by Reichheld -all were identical. As these data sets were specifically selected by Reichheld to demonstrate the linkage between Net Promoter and growth, they clearly should reveal relationships where

Net Promoter is a superior predictor of growth to other metrics. Comparison of Net Promoter and ACSI: Personal Computers American Customer Satisfaction Index (ACSI) 40% Three year shipment growth Three year shipment growth Net Promoter 30% Dell 20%

10% 0% IBM -10% -20% 0% Compaq 10% 20% H-P Gateway 30% 40%

50% Net Promoters Q1 2001 - Q4 2002 R2: 60% 40% 30% Dell 20% 10% H-P 0% -10%

-20% Compaq 67 69 71 Gateway 73 75 77 ACSI 2001 - 2002 .68

R2 (ACSI only companies*): .70 * The ACSI does not track IBM R2 (ACSI only companies*): .76 79 Comparison of Net Promoter and ACSI: Life Insurance American Customer Satisfaction Index (ACSI) 15% Northwestern 10% State Farm

Dell 5% Primerica Met Life 0% -5% -20% NY Life Prudential -10% 0% 10% 20%

30% 40% Premium Growth (1999-2003) Premium Growth (1999-2003) Net Promoter 15% Northwestern 10% 5% Met Life 0% -5%

NY Life Prudential 73 Net Promoters Q1 2001 - Q4 2002 R2: Dell 75 77 79 81 ACSI 2001 - 2002

.86 R2 (ACSI only companies): .83 * The ACSI does not track Primerica and State Farm R2 (ACSI only companies): .58 83 Comparison of Net Promoter and ACSI: Airlines Net Promoter American Customer Satisfaction Index (ACSI) 10% Southwest

5% 0% -5% Am. West Northwest AMR Three year growth Three year growth 10% Alaska Continental Delta

TWA -10% -10% US Air 5% 0% AMR Northwest Continental -5% Delta US Air United

0% 10% 20% 30% 40% 50% Net Promoters Q1 2000 - Q4 2002 R2: Southwest 60% -10% 58 60 United 62

64 66 68 70 ACSI 2000 - 2002 .68 R2 (ACSI only companies): .57 R2 (ACSI only companies): .70 * The ACSI does not track Alaska, Am. West, and TWA 72

74 Slow = Dead Someone Has to Drive the Process Keeping the Process Moving Quickly Will Not Make You Popular Getting There Is Not Half the Fun? I thought Why do you publish or keep this job? perish was Its killing you. rhetorical. Actual Quote from Co-Author

Regarding the Relentless Pressure to Complete This Paper Quickly If our friendship survives this paper, we will be friends forever. The Reality: If Your Topic Is Important, Someone Else Is Working On It Too! Leading scientific researchers teamed up with J.D. Power to gather the necessary data to investigate the ability of Net Promoter to predict financial performance. The results of this

research were published in Marketing Research in the Summer of 2007. Our Journal of Marketing paper was published in July 2007. You Cannot Please Everyone Important Works Often Have Difficult Reviews Reviewer Reaction Is Split! The reviews of 06-263-IR, A Longitudinal Examination of Net Promoter , are now in. This version was reviewed by a panel of four knowledgeable reviewers. In addition I

read the paper carefully myself. The reviewer reaction is split, with Reviewers 1 and 4 recommending acceptance, Reviewer 3 recommending revision, and Reviewer 2 recommending rejection. The Entire Review from One Reviewer Reviewer Number: 2 This paper is interesting and clearly written. Unfortunately it is not particularly scholarly. Almost no literature is cited, no theories drawn upon, or built upon. The introduction is high in fluff quotient. Difficult to assess whether data differences (i.e., whether the Norwegian data are comparable to the findings in Sweden and the U.S.) are attributable to cultural differences or mere measurement issues. Methodological techniques are far too narrow and simple.

The Importance of a Strong Editor Who Knows the Topic I know enough about this industry to know the potential importance of this paper in the business world, given the surprising popularity of Reichhelds measure among business leaders. This paper gives proper scrutiny to a current management fad. Overall I believe that the positives of the paper, noted clearly by the reviewers, far outweigh the negatives. Because of this, based on the reviewers evaluations and my own reading, I am pleased to conditionally accept your paper for publication in JM. PROMOTE, PROMOTE, PROMOTE! Getting the Word Out

We researched every article and blog post we could find that had written on Net Promoter. We personally contacted every one of these authors to let them know the findings of our research. Net Promoter Score Under Attack, Research Magazine, July 2007 The Net Promoter Debate, Ad Map, May 2007 Reichheld Under Attack, Colloquy, Summer 2007 The Only Number You Need to Know Does Not Add Up to Much, Marketing Week, March 6 2008

One Question and Plenty of Debate, Wall Street Journal, December 4, 2007 If Your Research Challenges Something Popular, Expect a Backlash Nobody Likes to Be Told the Emperor Has No Clothes, Particularly Those Who Have Chosen the Emperors Tailor No Regrets Despite the backlash (and career threats), we would do it again

in a heartbeat! The Keiningham-Aksoy Guiding Principles for Writing & Publishing The Keiningham-Aksoy Guiding Principles for Writing & Publishing 1. 2. You never know what will get accepted, so work on lots of things simultaneously. You cannot be an expert at everything, so a) build great teams, and b) do everything you can to make your teams successful. 3.

4. Work with people you like, and who are committed to working as a team. Faster, faster, faster! A slow paper is an idea that will be published first by someone else. Get your paper published! Our personal addition is even if it is on a cereal box! Everything you write cannot be a Tier 1 paper, but if your research was important enough for you to conduct and report, then it needs to be in print. Discussion & Questions Timothy Keiningham

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