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Product Management

The problems with Net Promoter Score

Introduction

Sometime back I had tweeted a thread about how I dislike NPS score as a measure of success. It led to a fair amount of discussion and debate. Hence, I decided to dig a bit deeper and write a longish post about it. While I have tried giving it some structure, each section is more or less self contained. You can directly jump into a specific section if you are already aware . I have tried to give enough context wherever possible.

I have also linked to sources wherever applicable, so feel free to follow them and do your own due diligence when in doubt.

Disclaimer: I am not yet fully satisfied with the article and feel I add more evidence, but this has been in my inbox for ages. I may add more details and address any specific questions and criticisms that may come my way. Please do let me know if I misrepresented or missed something


What is Net Promoter Score AKA NPS

Net promoter score is a widely used measure of customer loyalty today. It’s claim to fame is its utter simplicity. It can measure customer loyalty with just 1 question.

To calculate Net Promoter score you ask a statistically significant number of your customers to answer a single question

How likely is it that you would recommend [brand or company X] to a friend or colleague?

  • Ask them to select from a scale of 1-10(some orgs use a slightly different scale but 1-10 is the most widely used), where 1 means not likely at all, 10 means very likely and 5 means neutral.
  • Anyone who choses 1-6 is considered a Detractor
  • Anyone who choses 9-10 is a Promoter
  • Net Promoter Score= %age of Promoters – %age of detractors

The basic claim of NPS is that it can reliably measure customer loyalty and if the company focuses its efforts to increase NPS, it can lead to more healthy growth.

This two specific claims are important to keep in mind
1) Reliably measure loyalty (better than other scores)
2) Correlated to company growth (see more details in NPS Origin story sec)


NPS origin story

While internet is filled with how to use NPS, when to use NPS, and why to use NPS, before we get to all those questions it is necessary to understand how NPS even came into picture.

The origin story of anything reveals a lot about the motivations without the burden of muddled history between then and now.

NPS score was invented by Fred Reichheld who was a consultant at Bain and company . It was introduced to the world in this HBR article

The basic idea came about when they looked at a car company use a very simple method to increase customer loyalty. The company, Enterprise Rent-A-Car, simply asked people two questions
– Quality of rental experience
– Likelihood you would rent again

The company then counted only those customers who gave it the highest scores on both the questions. All their outlets were then asked to optimize for this specific score. It was believed that this would inspire the sales agents to be better and increase customer loyalty.

Fred wanted to make this system much more simpler and see if this could be brought down to just 1 question

Process of finding the One Question

  1. 20 questions were created on the Loyalty Acid test survey
  2. Test was administered to customers in following industries
    • Financial
    • Cable and telephony
    • Personal Computers
    • ecommerce
    • auto insurance
    • Internet service providers
  3. Then they asked each participant to tell about a specific instance when they actually referred the company to someone. If this was not available they waited 6-12 months and asked again. This data of about 4000 users was enough to create 14 case studies which established a link between survey response and actual referral
  4. Result
    • The top-ranking question was far and away the most effective across industries:
      • How likely is it that you would recommend [company X] to a friend or colleague?
    • Two questions were effective predictors in certain industries:
      • How strongly do you agree that [company X] deserves your loyalty?
      • How likely is it that you will continue to purchase products/services from [company X]?
    • Other questions, while useful in a particular industry, had little general applicability:
      • How strongly do you agree that [company X] sets the standard for excellence in its industry?
      • How strongly do you agree that [company X] makes it easy for you to do business with it?
      • If you were selecting a similar provider for the first time, how likely is it that you would you choose [company X]?
      • How strongly do you agree that [company X] creates innovative solutions that make your life easier?
      • How satisfied are you with [company X’s] overall performance?

Link between NPS score and company growth

Then they tried to find correlation of NPS score of customers with the actual company growth

  • In airlines a strong correlation existed between “Would recommend” question and average company growth
  • Similar results existed in rental car business
  • “Would recommend” was irrelevant for database software or computer systems as people had limited choice, and senior execs who made the choice were not part of the people surveyed. For such industries “Sets standards of excellence” and “deserves your loyalty” were far more predictive
  • NPS was also not a predictor for Local telephone and cable TV company growth because they were near monopolies. Their growth was determined by how fast the population in their area increased

Who uses NPS today

Pretty much every one. As of 2020 2/3 of fortune 1000 companies seem to use a version of NPS. One simple experiment would be to search for the term “How likely” in your Inbox

Ecommerce startups email after delivering the order

Good things about NPS

It is very simple to measure and benchmark .

  • Its a single question and is used by multiple industry players to benchmark against competition and internally
  • Its easier to digest at almost all levels of abstraction

High completion rate

With users being inundated with all kinds of brands seeking their attention, it is much more easier to get them to answer 1 question rather than multiple. Infact in the paper “Assessing treatment outcomes using a single question” where they did an NPS of patients, they found that the NPS question consistently had the highest completion rate (96.5%). I would also now assume that it has become so common that users almost expect this question and are willing to answer

It defines loyalty in interesting way:

While loyalty may traditionally be defined by retention, LTV, and other metrics , it can miss out on word of mouth. NPS attempts to target that specifically by a bit lose but interesting way

Customer Loyalty Definition in Original NPS system

  • Customer loyalty can be defined as customers willingness to stick to certain provider even if they are not providing the best possible rate in a particular transaction. Think if this like : ” Sure you may be charging me more today, but I know you have done great work in the past and generally give me good rate so I will stick to you even though cheaper options may be available”
  • Customer loyalty is also more than just retention because some people maybe retained just because they cannot move out due to inertia, or exit barriers. Eg : Monopoly players , or prepaid plans
  • Loyal customers may also not be repeat purchasers, eg when they outgrew that service. Eg: You may no longer buy a pulsar bike because you no longer drive a bike, but you would recommend it to your nephew when he is considering one.

Issues with Net Promoter Score

Its unclear what does it even link to

There are multiple leaps of faith on the original research. The way I read the original article it says

  • Answer to NPS question seems to be the highest correlated among other questions to actual referrals in some industries
  • Higher NPS seems to be correlated to higher growth rate irrespective of company size

It is unclear if this is even a measure of loyalty at all. It is simply supposed to be used as a predictor of growth

If you want to use it as a predictor of growth, the way it was actually intended to be used, it is unclear that it is in anyway better than say CSAT or good old churn rates / retention rates

Its arbitrary and ignores all cultural nuances

There seems to be no clarity on why someone who says 6 vs 7 are in a different bucket while 5 vs 6 are not. Also no clarity why focussing only on difference between promoters and detractors matter. What if we just tried increasing average score?

It also ignores all cultural nuances. Eg: if you travel in Uber in US vs India, you may see a huge difference in your ratings. Anecdotally I have seen my ratings drop in india and rise in US. I presume there is a cultural difference here. In India low rating is 1* whereas in US its 4* .

It is not reproducible

This is perhaps the BIGGEST issue with Net Promoter score. The biggest claim with NPS was it is the single best predictor of growth, but this 2007 paper found no support for that claim when they tried to replicate the same study that Reichheld did. Not surprisingly, they found that NPS performed as well or as poorly as using the customer satisfaction index to predict growth

Comparison of NPS and Customer satisfaction index as a predictor of company growth. Source

There seems to be no real statistical backing to NPS, and as per the paper, even Reichheld acknowledges that

Reichheld’s statement acknowledging the issues with NPS

It is more noise than signal

What do you do with NPS? One common theme is that you work towards increasing it, but that is not a good reason to ask this question in the first place. What if you simply relied on satisfaction surveys or measurable things such as actual referrals , cost of acquisition, churn rates etc. There seems to be no clarity that it gives you anything additional

Another issue is that it varies a lot on multiple factors.

More variables = more errors.

Eg: when NHS introduced NPS they found that only about 40% variations in NPS scores was explained by overall satisfaction whereas rest was explained by various other metrics such as: if the patient undertook hip replacement or knee replacement.

Even the NPS difference between patients who underwent Hip replacement(71) and knee replacement(49) were stark making it impossible to benchmark them. A bad action item for the hospital would be to target for same NPS across all services.

If a hospital cannot even benchmark within its own departments, it’s useless to try and benchmark to others.

Now imagine Flipkart doing NPS. It would vary widely based on specific products a user buys. . This is something that is already captured in the product reviews, but NPS may unnecessarily create noise. Trying to make sense of these variations maybe leading to large time sinks

Some companies, especially in ecommerce, go overboard and try to find NPS for each product and service, which again seems unnecessary. It is no longer a measure of loyalty but just a feedback of the product, which may be better asked directly via ratings and reviews.

Eg see below Myntra trying to do NPS linked to a specific product. But even if I rate it low they may have no action item because they do not control the product itself. Lot many questions need to be asked to even understand my response.
A better question would have just been do you like the product, which not only would be direct but also feed their rating system.

Unclear if its worth spending effort on

Even if we assume that increasing it would lead to growth, it’s anyone’s guess that how much that number may be. If say I have an NPS of 70 and my competitor has 35, am I growing twice as fast?

It is as easily manipulated as any other survey measure

Just like satisfaction surveys which can be manipulated, so can NPS. Simple techniques could be

  • Asking the user to rate you after a good interaction. Eg: As soon as order is delivered, or a ticket resolved. At this time you are no longer trying to find and fix issues, you are simply trying to get that score. This technique may have an effect for Play store reviews and youtube videos where ratings and likes are a social signal to other users, they are counter productive for NPS , unless this NPS is being collected as a vanity metric. Eg: Pitch deck, Presentation to leadership
  • Incentivising the user: Eg give your software product for a free trial and see almost every customer give you high ratings on NPS. It is meaningless and may have no correlation to your growth

I also did a very unscientific survey on Twitter and Linkedin to know if companies took NPS targets, and if the person responsible for the target also controlled stuff like when NPS was sent and how to pacify the user: Here are the results

As you can see ~30% companies have NPS goals and the owner of the goal optimises of things like when to send the survey and in some cases even customer incentive . You get what you optimise for and in this case my hypothesis is that system is designed to make the NPS go up not necessarily the loyalty

You get what you optimise for

This maybe the reason why companies with really high NPS also go bankrupt

Its unnecessarily complicated

There are many reasons you would not recommend a specific product to someone. Just like in NPS article they mentioned that a loyal customer may not be a repeat customer because they outgrew the product, but would happily recommend it to someone who did not. Using the same logic, someone who may be a loyal customer may not recommend it to friends who may not be the target customers. NPS would classify these loyal customers as detractors.

Another issue is that it assumes that detractors are not promoters. But the reality is different. Your personally may hate the product but if you were to suggest a product to someone you would play a matchmaker role and take into consideration their individual needs and circumstances.

This 2019 survey found that 52% users who actively discourages others from using a brand also actively recommended it. You can be a promoter and detractor at the same time based on who you are talking to or how your last experience with the brand has been.

It’s not a single question

While the whole USP is its single question, you invariable would need more information as soon as the users rate <7 , defeating the whole purpose of simplicity.

Loyalty is multidimensional

While NPS seems to acknowledge that loyalty is multi dimensional, it tries to collapse it into a single dimension of word of mouth.

The purest measure of loyalty in my opinion is customers actually spending money to buy your product. I criticise my bank a lot, but despite many many alternatives I have stuck with them for 15 yrs. By every definition, I am a loyal customer who they would want. A research done by University of Cambridge with an asset heavy company in UK over three years they found that NPS and actual user behaviour did not match

Its probably not for your industry

This is less of NPS issue and more of marketers abusing NPS because of its perceived simplicity. Even in the original research NPS was not found to be a predictor of growth in industries such as computer databases. Remember the ONLY thing it was supposed to do was predict if you will grow, without that correlation the score is more or less useless. Sales is complex and any industry with high inertia, top down decision making, and monopolistic players NPS is not even applicable. This makes me wonder why so many startups are obsessed with it.

Its also possible that NPS should not even be a big goal. Eg in the NHS paper I referred to, difference in NPS among patients was was not due to actual patient care and recovery. Perhaps NPS is not even a measure for hospitals.


Final Thoughts

NPS seems to be a arbitrary score with little statistical backing. It may not even be valid for many industries which are currently using it.
While it can be used as a tool in your armour of many other signals, over reliance on this for making decisions is not prudent.

NPS is popular perhaps because it is simple, but this reminds me of the phenomenon of Bikeshedding .

Bikeshedding: If a committee were to design a nuclear power plant, they may spend far more time than necessary to discuss the bike sheds, its color, its position, and its capacity . The reason for this is that bike sheds are easy to design and everyone can have an opinion on it.
In corporate we sometimes spend a lot of time on bikeshedding activities just because our minds automatically go towards simplicity first.


NPS to me sometimes sounds like the Bikeshed of the user research world

As a startup / company I would be more worried about actual referrals, customer churn/ retention, cost of acquisition than NPS. Low NPS maybe a sign of something wrong, but it’s likely also showing up in other survey questions.


NPS may be simple, but not necessarily useful

As an investor I would ideally ignore the NPS score, it’s easy to manipulate and if it’s rewarded it would be in any companies best interests to figure out how to get better scores

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Twitter as Identity and Social Capital management

Recent Updates:

As some of you already know, I am LONG twitter and feel that it has just started to just scratch the surface of what is possible. Recently twitter announced a slew of new features including

  • Spaces : Clubhouse competitor
  • Subscriptions: Subscribe for
    • Exclusive tweets / content
    • Newsletter
    • Badge
    • Community

In January twitter also acquired revue, a newsletter company to let twitter users start newsletters

They also announced that they are reopening “Verification” in early 2021 and users would be able to request for it

Where is it going

I beleive twitter is unleashing the beast with the power of its platform and could eventually go into Identity and Social capital management. Here are some of my early thoughts

Twitter as Identity Management

Once twitter starts mass verifying users, it would become perhaps one of the largest consumer facing identity management platform in the world. It would be bigger than many governments and will come with added social capital.

When someone says they are verified, you not only know who they are, but can also go and check out their profile.
There is a massive need for user identity verification especially in situations involving people to people contact. Eg Uber users in brazil need to validate via CPF(national ID ) if they want to pay via cash. This helps them establish trust. Think about using twitter globally

Other user cases could be

  • Is the person sending me the email the same as they claim to be
  • Is the person bidding for my furniture real

A lot of startups bootstrap on twitter network( Eg: Substack), imagine what could be done with high trust authentication.


Twitter as Social Capital Management

Whenever any influencer or content creator opens up another channel (Eg a new newsletter, a youtube channel, a blog) they end up recreating the entire network again. The need to gain the trust of not just the followers but also the platform.

While there surely are massive advantages of existing audience which follows the creator, there is always a huge leakage and the creator is subject to very different rules on each.

Eg: Even if you are extremely popular on twitter, you cannot take that social capital to say a mailchimp to send your newsletter. You need to “warm up” the system, hope your audience opens it, prey that spam filters don’t flag you, and if you have a shared IP hope all other providers are not doing something shady.

Mailchimp has no context of who you are or how you built your audience. There is no social capital associated with you.

But with twitter this could change. Twitter could use your social capital of one platform (say twitter) to jump start you on another (eg newsletter). It can use your social capital for more than just growth hack.

Will it matter to small time creators

While small social capital on one mode of communication may not matter to people, a multi modal platform may matter in aggregate.

The biggest advantage of this is that as people start deriving more value from the system, the incentive for bad behaviour becomes less You also become super cautious if you verify at any place using twitter because you don’t want to mess with your social credit.

Gotchas to watch out for
It needs to be debated if it would be wise for a single private party to wield such power. Would your twitter identity become more important than your local identity?

Some interesting ideas I think twitter would / should do

  • More control on tweet embedding: Let me generate a id that any media agency that wants to embed my tweet needs. I can then charge for my tweets
  • Transfer tweet ownership: Currently if your tweet becomes popular, people reach out to you to add their product / business as a reply. This helps people make some money. It would be interesting to see if I could just pass on the tweet ownership to someone else and they would be free to add any reply to the main thread
  • NFT: While some startups are attempting this. Every tweet could be an NFT and that can drive the tweet embedding and ownership ideas as well.
  • Tweet Ads: Every time a tweet is embedded on an external site, twitter could show and ad and share revenue with the tweeter directly
  • Mail client: While twitter knows about the social capital, it still is hindered by the spam rules of other mail client providers. I suspect they may start their own
  • Influencer Management / Tracking / smart contracts: Imagine you hire an influencer for reaching X million audience. The entire deal is done on twitter where twitter is responsible for measurement of success (which they already do). As soon as the success criteria is met, the influencer is paid . This operation could be controlled via ethereum smart contracts. This makes the entire system seamless and painless

You may have noticed I did not talk about tweet edits. Read why I don’t think twitter would ever, or should ever allow tweet edits

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Why Twitter will never and should never have an edit button

Edit button on twitter is possibly the most requested feature in any product EVER, but somehow twitter never really introduced it. It is also possibly the only “Social Media” where you cannot edit as soon as you post. You can only delete and repost or add a correction in reply.

The feature is so highly requested that even twitter trolled the world by saying, you get an edit if everyone wears a mask. Great way to spread the message but basically saying, NAAAH


My Take is that

Twitter will likely NEVER give an edit button. It’s not a simple social media. Tweets are public, they are quoted, and become news. Tweets are a system of records of a person’s opinion

Tweets are a system of records for a person’s opinion.

There are no edits in it, only new versions. All history is maintained in perpetuity unless it’s useless.
Each person is aware of exactly which version of persons opinion they interacted with.

Ideally they should not have delete but thats survival, you probably wont use it without an ability to delete.

I suspect if ever twitter decides to allow some kind of edit, it will come up with some kind of versioning system for tweets.
Each interaction would be tagged to the exact version. 10 comments on version 1, 20 likes on version 2
But most likely that wont happen anytime in the near future.

While as a user I hate not being able to edit, I can clearly see its utility. This system of record is so powerful that you now have an authoritative view on what the person thought in the past. It’s either authoritative, or it has been deleted. There is no guessing.

Its a phenomenal space to be in.

Twitter is more valuable because it does not have an edit

I see the value so much that If Twitter ever added an edit button like Linkedin or FB, I will probably sell whatever Twitter stocks I hold

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