2006 Q2 Book Review
The Ultimate Question
by Fred Reichheld
This book discusses the use of the Net Promoter Score (NPS) in the metrics used by businesses today. The one simple question – Would you recommend us to a friend? Allows companies to track promoters and detractors and produces a clear measure of an organization’s performance. Using a 10 point scale with 10 representing extremely likely to recommend and 1 representing not all likely to recommend, the author has developed a formula based on promoters and detractors.
The NPS is based on the fundamental perspective that every company’s customers can be divided into three categories. Promoters are loyal enthusiasts who keep buying from a company and urge their friends to do the same. Passives are satisfied but unenthusiastic customers who can be easily wooed by the competition. And detractors are unhappy customers trapped in a bad relationship. By subtracting the detractors from the promoters the NPS is calculated.
Based on the author’s research, the NPS tracks very closely with the growth of a company, i.e. the higher the NPS the better the growth for a company. Further analysis shows that, on average, increasing the NPS by a dozen points versus competitors can double a company’s growth rate.
Although the book was published in March 2006, an article appeared in the Harvard Business Review in late 2003. Since early 2004 SPG has been incorporating the NPS in most of our company survey as and we now have an extensive database of Net Promoter Scores. We have found the NPS to be a very good metric for helping companies become more profitable.