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NPS - Dead in the Water (Terrific Paper 2013)

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A terrific piece of work delivered at AMA ServSig Doctoral Consortium Taipei 2013 National Taiwan University, Taipei, Taiwan — July 3-4, 2013 by Lerzan Aksoy & Timothy Keiningham

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NPS - Dead in the Water (Terrific Paper 2013)

  1. 1. The linked image cannot be displayed. The file may have been moved, renamed, or deleted. Verify that the link points to the correct file and location. Research Journey Our Investigation of the Net Promoter Score AMA ServSig Doctoral Consortium Taipei 2013 National Taiwan University, Taipei, Taiwan — July 3-4, 2013 Lerzan Aksoy & Timothy Keiningham Lerzan Aksoy Associate Professor of Marketing FORDHAM UNIVERSITY Timothy Keiningham Global Chief Strategy Officer IPSOS LOYALTY
  2. 2. The Team Tor Wallin Andreassen Professor of Marketing Norwegian School of Management Lerzan Aksoy Associate Professor of Marketing Fordham University Timothy Keiningham Global Chief Strategy Officer Ipsos Loyalty Bruce Cooil The Dean Samuel B. and Evelyn R. Richmond Professor of Management Vanderbilt University
  3. 3. “A Longitudinal Examination of Net Promoter and Firm Revenue Growth,” Journal of Marketing, July 2007 2007 MSI H. Paul Root Award
  4. 4. “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
  5. 5. “Linking Customer Loyalty to Growth,” MIT Sloan Management Review, Summer, 2008
  6. 6. REALLY Know the Topic Timothy Keiningham
  7. 7. Net Promoter Score Featured in the Harvard Business Review, MIT Sloan Management Review, and the book The Ultimate Question
  8. 8. How to Calculate a Net Promoter Score Ø  Net Promoter asks one question, “Would you recommend us to a friend or colleague?” that customers answer on a scale of 0 to 10. Ø  Responses are grouped into three categories: Detractors, Passives and Promoters. Ø  Subtract Detractors from Promoters and you have a Net Promoter Score. 0 1 2 3 4 5 6 7 8 9 10 Likelihood to Recommend Not At All Extremely Likely Neutral Likely Detractors Passives Promoters Promoters Detractors Net Promoter
  9. 9. Net Promoter Is Sold As “The Single Most Reliable Indicator” Of Firm Growth http://www.netpromoter.com/
  10. 10. Reichheld’s 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.
  11. 11. Key Findings from Reichheld’s 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 company’s 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 <http://www.satmetrix.com/pdfs/netpromoterWPfinal.pdf>
  12. 12. Two Key Findings from Reichheld’s 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 insignificant predictive advantage.” (Reichheld 2003). 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 <http://www.satmetrix.com/pdfs/netpromoterWPfinal.pdf>
  13. 13. Data Is King!!!
  14. 14. 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, mass-merchant 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.
  15. 15. 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
  16. 16. 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
  17. 17. 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!
  18. 18. 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.
  19. 19. Go the Extra Mile Timothy Keiningham
  20. 20. 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).
  21. 21. Reichheld Specifically Targets the American Customer Satisfaction Index as Inferior in His HBR Article Our research indicates that satisfaction lacks a consistently demonstrable connection to actual customer behavior and growth. This finding is borne out by the short shrift that investors give to such reports as the American Customer Satisfaction Index. The ACSI, published quarterly in the Wall Street Journal, reflects customer satisfaction ratings of some 200 U.S. companies. In general, it is difficult to discern a strong correlation between high customer satisfaction scores and outstanding sales growth.
  22. 22. Reichheld Specifically Targets the American Customer Satisfaction Index as Inferior in His Book “Some recent evidence that there is little connection between satisfaction scores and economic results comes from the ACSI itself, whose data used to be published each quarter in the Wall Street Journal (under the heading of marketing, not investing)” (The Ultimate Question, p. 85).
  23. 23. Reichheld States that Bain Research Shows a ZERO Correlation between the ACSI and Growth Frederick F. Reichheld (2004), “Net Promoters,” Bain Audio Presentation, (February 24), <http://resultsbrief.bain.com/videos/0402/main.html> “A Bain team looked at the correlation between growth and satisfaction, and found there is none.” Reichheld 2004 An R-square of 0.00 indicates absolutely no correlation whatsoever! The ACSI
  24. 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.
  25. 25. Comparison of Net Promoter and ACSI: Personal Computers R2: .68 R2 (ACSI only companies*): .70 R2 (ACSI only companies*): .76 Net Promoter American Customer Satisfaction Index (ACSI) Threeyearshipmentgrowth 670% 10% 20% 30% 40% 50% 60% 69 71 73 75 77 79 0% -20% -10% 10% 20% 30% 40% 0% -20% -10% 10% 20% 30% 40% IBM Dell H-P GatewayCompaq Dell H-P GatewayCompaq Threeyearshipmentgrowth Net Promoters Q1 2001 - Q4 2002 ACSI 2001 - 2002 * The ACSI does not track IBM
  26. 26. Comparison of Net Promoter and ACSI: Life Insurance R2: .86 R2 (ACSI only companies): .83 R2 (ACSI only companies): .58 Net Promoter American Customer Satisfaction Index (ACSI) PremiumGrowth(1999-2003) -20% -10% 0% 10% 20% 30% 40% 5% -5% 0% 10% 15% NY Life Dell Met Life Prudential Net Promoters Q1 2001 - Q4 2002 Northwestern State Farm Primerica 73 83 5% -5% 0% 10% 15% NY Life Dell Met Life Prudential ACSI 2001 - 2002 Northwestern 75 77 79 81 PremiumGrowth(1999-2003) * The ACSI does not track Primerica and State Farm
  27. 27. Comparison of Net Promoter and ACSI: Airlines 62 R2: .68 R2 (ACSI only companies): .57 R2 (ACSI only companies): .70 Net Promoter American Customer Satisfaction Index (ACSI) Net Promoters Q1 2000 - Q4 2002 ACSI 2000 - 2002 Threeyeargrowth -10% 0% 10% 20% 30% 40% 50% -5% -10% 0% 5% 10% 60% Southwest Alaska Continental United Delta AMR US Air TWA Northwest Am. West Threeyeargrowth 58 64 66 68 70 72 -5% -10% 0% 5% 10% 74 Southwest Continental United Delta AMR Northwest 60 US Air * The ACSI does not track Alaska, Am. West, and TWA
  28. 28. Slow = Dead Someone Has to Drive the Process
  29. 29. Keeping the Process Moving Quickly Will Not Make You Popular
  30. 30. Getting There Is Not Half the Fun? Why do you keep this job? It’s killing you. I thought “publish or perish” was rhetorical.
  31. 31. 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.”
  32. 32. 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.
  33. 33. You Cannot Please Everyone Important Works Often Have Difficult Reviews
  34. 34. 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.
  35. 35. 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.
  36. 36. 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 Reichheld’s 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.
  38. 38. 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.
  39. 39. Net Promoter Score Under Attack, Research Magazine, July 2007
  40. 40. The Net Promoter Debate, Ad Map, May 2007
  41. 41. Reichheld Under Attack, Colloquy, Summer 2007
  42. 42. The Only Number You Need to Know Does Not Add Up to Much, Marketing Week, March 6 2008
  43. 43. One Question and Plenty of Debate, Wall Street Journal, December 4, 2007
  44. 44. If Your Research Challenges Something Popular, Expect a Backlash
  45. 45. Nobody Likes to Be Told the Emperor Has No Clothes, Particularly Those Who Have Chosen the Emperor’s Tailor
  46. 46. No Regrets Despite the backlash (and career threats), we would do it again… in a heartbeat!
  47. 47. The Keiningham-Aksoy Guiding Principles for Writing & Publishing
  48. 48. The Keiningham-Aksoy Guiding Principles for Writing & Publishing 1.  You never know what will get accepted, so work on lots of things simultaneously. 2.  You cannot be an expert at everything, so a) build great teams, and b) do everything you can to make your teams successful. §  Work with people you like, and who are committed to working as a team. 3.  Faster, faster, faster! A slow paper is an idea that will be published first by someone else. 4.  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.
  49. 49. Discussion & Questions Timothy Keiningham