Int. J. Management Concepts and Philosophy, Vol. 8, No.

4, 2014 209

Net promoter score: a conceptual analysis

Pratap Chandra Mandal

VIT Business School,
VIT University,
Vellore, Tamil Nadu – 632 014, India
Email: pratap1124@gmail.com

Abstract: Net promoter score (NPS) was introduced by Frederick Reichheld in

the year 2003. It has been claimed that companies need to keep track of only
their individual NPSs and this one number would determine customer loyalty
and the growth rate of the companies. Several academicians and researchers
have argued about the validity of NPS as the only factor that determines
the company growth rates. The analysis of NPS can be done from both
empirical perspective and conceptual perspective. An analysis of NPS from the
conceptual perspective based on Reichheld’s original paper has been attempted.
It is evident from the analysis that NPS only gives a particular direction to
increase the company growth rate and is not the only factor that determines it.
Several other factors might be there that influence the company growth rate.

Keywords: NPS; net promoter score; customer loyalty; growth rate; promoter;
detractor.

Reference to this paper should be made as follows: Mandal, P.C. (2014)

‘Net promoter score: a conceptual analysis’, Int. J. Management Concepts and
Philosophy, Vol. 8, No. 4, pp.209–219.
Biographical notes: Pratap Chandra Mandal has completed his Bachelor of
Technology in Mechanical Engineering from the reputed Indian Institute of
Technology, Kharagpur (IIT Kharagpur), India, Master’s Degree in Business
Administration from Vinod Gupta School of Management, IIT Kharagpur
and was a Doctoral Candidate in Vinod Gupta School of Management,
IIT Kharagpur. At present, he is a faculty of Marketing, VIT Business
School, Tamil Nadu, India. His research concerns customer relationship
management and customer satisfaction in the Indian retail banking sector.
He has won several prestigious scholarships and awards throughout his
academic career.

1 Introduction

Growth is the engine of prosperity and success for organisations. Growing companies
flourish whereas shrinking companies die. The road to growth lies in not just attracting
new customers, but holding on to the customers, which the organisations have at present,
and to motivate them to spend more and getting them to recommend the products
and services to the people they know. It is easy to believe that customers are the
driving force for profitable growth. It is altogether different to know how to measure

Copyright © 2014 Inderscience Enterprises Ltd.

210 P.C. Mandal

and manage the customer relationship effectively. It is essential to assess and monitor
how companies manage the customer relationship and determine customers’ new and
unmet needs.
Most companies are unable to manage their relationships with their customers. This is
because they do not have detailed information on which they can act to make the
relationship more valuable. So, the companies need to measure how customers really feel
and what they are likely to do. Also, the companies need to understand the impact of this
information on the business.
In recent years, researchers have suggested a number of customer metrics to illustrate
the connections between customer behaviour and company growth. NPS is one such
metric. Reichheld (2003) proposed the concept of NPS in the Harvard Business Review.
He claimed that only one question based on the likelihood of the recommendation of the
customer to friends or colleagues would determine customer loyalty and consequently the
growth of the organisation. He claimed that there is no need to conduct extensive surveys
and do detailed statistical analysis. Only one question: ‘How likely is it that you
would recommend our company to a friend or colleague?’ would determine customer
loyalty and profitability of the company. The growth of the company would be
proportional to the number of ‘promoters’ the company is having based on the
above-mentioned question. Reichheld (2003) claims that the willingness to promote is a
strong indicator of loyalty and consequently of the growth of the company because the
customers put their reputation at stake when they are recommending and they will do that
only when they are intensely loyal. The calculation of the NPS is quite simple. Customers
are asked the question: ‘How likely is it that you would recommend our company to a
friend or colleague?’ The responses of the customers are captured on a 0–10 rating scale.
The customers are grouped into ‘promoters’ (9–10 rating), ‘passively satisfied’
(7–8 rating) and ‘detractors’ (0–6 ratings). The percentage of detractors when subtracted
from the percentage of ‘promoters’ gives the NPS. Reichheld claims that NPS gives an
indication about the loyalty of the customers towards the company. Also, NPS has more
linkage with the financial performance and the growth of the company than any other
indicator.
After publishing the original concept, Reichheld has reinforced his ideas about NPS
in several published papers (Reichheld, 2004, 2006a) and conference presentations
(Reichheld, 2006b). The concept of NPS has gained popularity among managers because
it is simple to implement and easy to communicate. It also relieves the managers of any
detailed customer survey and also subsequent statistical analysis of the data collected
through surveys. This saves a lot of time and energy of the managers and also the
company resources. The immediate links to profitability and adoption of NPS by leading
companies like GE, American Express and Microsoft (Creamer, 2006; Keiningham et al.,
2007) have also contributed towards its popularity.
Although the NPS concept was almost immediately accepted by managers, many
people have not accepted and adopted the NPS concept without sufficient logic.
Practitioners and academicians have raised doubts about the claims made by NPS
(Morgan and Rego, 2004; Keiningham et al., 2007). They have cautioned people that
NPS might not be as effective as it claims to be (Morgan and Rego, 2006; Keiningham
et al., 2007).
 Net promoter score: a conceptual analysis 211

On the basis of all the above-mentioned evidences, the NPS concept needs to be
evaluated from two perspectives:
• empirical perspective
• conceptual perspective.
Rigorous empirical testing has been done by some of the researchers (Marsden et al.,
2005; Morgan and Rego, 2006; Keiningham et al., 2007; Brandt, 2007; Crosby and
Johnson, 2007; Nicks, 2006; Pingitore et al., 2007). The researchers have cautioned that
the simple claims about NPS may not reflect the ‘ultimate’ in customer measurement and
management. This paper focuses on the analysis of NPS based on conceptual analysis.
The empirical findings of the researchers for NPS might be focused on by researchers
interested in analysing NPS from an empirical perspective. Although analysed
empirically, the NPS concept needs to be rigorously analysed from the conceptual
perspective. The analysis from the empirical perspective combined with the analysis from
the conceptual perspective will help in the complete evaluation of the NPS concept.
In this paper, an attempt has been made to study and analyse the NPS concept from
the empirical perspective. The analysis is based mainly on the Harvard Business Review
paper on NPS written by Frederick Reichheld in 2003. The core purpose of the paper is to
examine the conceptual foundations of NPS. The evaluation and the arguments presented
here stem largely from logic and principles of social science and marketing methodology.
Despite the concerns that follow regarding NPS, one important clarification needs to
be added. One can raise points of critique regarding NPS while being an absolute
advocate of earning positive word-of-mouth communication from customers, and
strategically avoiding negative word-of-mouth communication. Marketers accept that
word of mouth is a critical behavioural outcome of strategic customer experience
management. Word of mouth is a consequence resulting from customer perceptions and
evaluations of a company’s total offering (e.g., excellence in products, services, value for
money, reputation, etc.). Managing to excellence on those causally driving dimensions is
required to generate positive word of mouth from customers, and to avoid negative word
of mouth. So, this critique of NPS is not in any way an indictment of the value of
understanding and trying to manage customer word-of-mouth behaviours.

2 Evaluation of net promoter score (NPS) from conceptual perspective

The evaluation has been done based on critically analysing various aspects of the paper
by Reichheld (2003).

2.1 Reichheld’s argument changes from time to time

In his previous papers, Reichheld (1996) claimed that customer loyalty and customer
retention were the two most important factors driving the growth of any company.
He argued that a 5% reduction in customer loss or an increase in customer retention even
by 5% would lead to a drastic change in the performance of the company. At that point of
time, the major driver for the growth of a company, according to Reichheld, was not
recommendations by customers but something else (customer retention) as stated earlier.
Also, several other issues that seem to be more connected to the growth of a company
212 P.C. Mandal

were discussed, viz., sustained purchase, increased volume of sales, increased share of
purchase and some other loyalty measures. But, the message conveyed by Reichheld
changed drastically with the NPS concept. As per the NPS concept, Reichheld claims that
customer recommendations alone determine the growth of the company. All other
powerful outcomes of customer loyalty are irrelevant and need not be considered
for evaluating the growth of the company. Too much emphasis on customer
recommendations alone seems to ignore the other factors (already mentioned earlier),
which might be equally important for the growth of the company.

2.2 One single number can tell something but not everything
While analysing or diagnosing a problem and while trying to find the causes behind the
problem, the problem needs to be analysed from all possible angles. If the problem is
analysed from only one angle, various other angles and as a result various other important
factors that might have actually caused the problem are sure to be left out. So, the
solution will only be a one-dimensional solution to the problem ignoring the other
dimensions. The solution might not be applicable in all the cases because it has been
arrived at keeping in view only about one perspective of the problem. There might be
several other perspectives where the solution will not be applicable. Similarly, the NPS
concept is based on only one question and certain aspects about the performance and the
growth of the company. But, it is doubtful whether it will be able to give a clear
understanding about everything related to the growth of the company and to understand
the future actions, which might drive the future growth of the company. For instance, the
NPS is just a numerical figure and it does not give an indication about the reasons of a
company getting a specific NPS score. Also, the underlying causal effects, which result in
a particular NPS, may never be evident from one single number. A higher or a lower NPS
is just a numerical figure in itself and gives no indication about how the company
achieved it or the set of actions the company should adopt after getting a particular NPS.
It gives no indication about the series of actionables to be undertaken to make the number
go up. For this reason, more information needs to be gathered about the performance and
the growth of the company. At one point of time in his paper, Reichheld also seems to
accept the fact that follow-up questions should be asked to unearth the reasons for
customers’ feelings.
NPS is a single-item measurement of customer loyalty. Measurement based on single
items has serious deficiencies, which have already been established by researchers
(Jacoby, 1978; Churchill, 1979). First, individual items usually have considerable
uniqueness or specificity in that each item tends to have only a low correlation with the
attribute being measured and tends to relate to other attributes as well. So, customer
loyalty and subsequently company growth measured based on a single-item measure,
NPS, might relate to some other measures that might not be related to customer loyalty or
company growth. Second, single items tend to categorise people into a relatively small
number of groups. For example, an 11-step rating scale as used for NPS can at most
distinguish among 11 levels of an attribute. Third, individual items typically have
considerable measurement error. They produce unreliable responses in the sense that the
same scale position is unlikely to be checked in successive administrations of an
instrument.
All three of the above-mentioned measurement difficulties can be diminished with
multi-item measures.
 Net promoter score: a conceptual analysis 213

• the specificity of items can be averaged out when they are combined
• by combining items, one can make relatively fine distinctions among people
• the reliability of the measurement tends to increase and measurement error decreases
as the number of items in a combination increases.
The folly of using single-item measures is illustrated by a question posed by Jacoby
(1978):
“How comfortable would we feel having our intelligence assessed on the basis
of our response to a single question? Yet that is exactly what we do in
consumer research … The literature reveals hundreds of instances in which
responses to a single question suffice to establish the person’s level on the
variable of interest and then serves as the basis for extensive analysis and entire
papers.
… Given the complexity of our subject matter, what makes us think we can use
responses to single items (or even to two or three items) as measures of these
concepts, then relate these scores to a host of other variables, arrive at
conclusions based on such an investigation, and get away calling what we have
done ‘quality research’?”
The above-mentioned arguments conclusively suggest that marketers are much better
served with multi-item than single-item measures of their constructs, and they should
take the time to develop them. This conclusion is particularly true for those investigating
behavioural relationships from a fundamental as well as applied perspective, although it
also applies to marketing practitioners.

2.3 The nature of the single question asked

The question asked while calculating the NPS to determine loyalty seems to be
ambiguous in itself. It is unclear whether NPS is a cause of loyalty, an outcome of loyalty
or just simply a measurement of loyalty. It is important to understand whether the NPS is
the factor that is causing loyalty or it is the final outcome of loyalty. It might also indicate
a numerical figure, which just measures loyalty. The approach of the company based on
the NPS needs to be different in the above-mentioned three different cases. The
comments about NPS made by Reichheld (2003) in his paper do not make it clear, which
is the actual case. He seems to say that NPS is all of the above-mentioned three. But if
analysed logically, we will understand that NPS cannot be the cause, the outcome and
measure – all the three at the same time.

2.4 Causal relationship between net promoter score and growth

Reichheld (2003) says in his paper that NPS should be important for a company because
there is a correlation between NPS and performance of the company, which ultimately
leads to the growth of the company. On the basis of the correlation between NPS and
performance of a company, he concludes that there is a causal relationship between them
and that higher NPS indicates higher growth for a company.
Statistical analysis says that high correlation between two variables does not
necessarily mean causality between those two variables. High correlation only indicates
that those two variables are somehow correlated to each other. It does not indicate any
214 P.C. Mandal

causal relationship between the two variables. Also, it does not indicate which variable is
the cause and which variable is the effect. High causality between two variables indicates
high correlation between those two variables but the reverse is not necessarily true. So,
Reichheld’s claim of causality between NPS and company performance based on their
correlation seems to be incorrect.
Reichheld’s (1996) previous work seems to agree that customer recommendations
help in the growth of a business but he admits that recommendation is one of the several
outcomes of customer loyalty. There, it was clear that customer loyalty is the cause and
recommendation is the effect. Companies need to manage customer loyalty (cause) to
have more recommendations (effect), which might ultimately lead to the growth of the
company.

2.5 Definition of loyalty

Reichheld (2003) gives the definition of loyalty as:
“Loyalty is the willingness of someone – a customer, an employee, a friend – to
make an investment or personal sacrifice to strengthen a relationship.”
Reichheld seems to have given the above-mentioned definition of loyalty because the
concept of recommendation fits into this definition. But, the definition of loyalty does not
depend on whether it fits into the concept of recommendation. Any definition needs to be
valid. The definition of loyalty given by Reichheld seems to have violated the
requirement of validity. Also, the above-mentioned definition of loyalty differs
considerably from the various well-accepted definitions of loyalty (e.g., Oliver, 1999;
Dick and Basu, 1994).
Again, sacrifice does not necessarily indicate loyalty. A person may be forced to
sacrifice many things in life with which loyalty might not have any connection. Also,
Reichheld himself agrees that mere repeat purchase might not always indicate loyalty.
Repurchase might arise from high exit barriers because of which a customer is somewhat
forced to remain with a specific company. But, this hardly indicates loyalty. Again,
a company might have a monopoly in a particular product or service because of which a
customer is forced to continue buying from that company. So, repeat purchase does not
necessarily indicate loyalty although the reverse might be true. But as per Reichheld, as
long as the customer continues to refer the company to others, the customers would be
considered as a loyal customer, which violates the basic definition of loyalty. This also
violates Reichheld’s own previous writings on loyalty where he argued that the bulk of
financial benefits of loyalty come from sustained repeat purchase. He argued that repeat
purchase across the customer lifecycle would lead to enhanced profitability. So, it is a bit
surprising that in the case of NPS he claims that recommendation alone can comprise the
entirety of the loyalty picture even if someone has stopped purchasing from the company
totally. Again, loyalty needs to be both attitudinal and behavioural. The behavioural
component is repeat purchase (Jacoby and Chestnut, 1978; Dick and Basu, 1994; Oliver,
1999). Only attitudinal loyalty without behavioural loyalty cannot be considered as true
loyalty (Salegna and Goodwin, 2005). But in the case of NPS, Reichheld takes into
account only the attitudinal component of loyalty forgetting about the behavioural
component.
 Net promoter score: a conceptual analysis 215

2.6 Only recommendations are not sufficient

Customer recommendations are important for any company. Earning positive word-of-
mouth communication from customers can be a powerful force augmenting a company’s
marketing efforts, especially in today’s ‘connected customer’ contexts (Kirby and
Marsden, 2005). Recommendation indicates that the customers are selflessly
communicating positive word of mouth about the company to others. This will obviously
help the company to get more customers and increase its customer base. So,
recommendations are always essential for the growth of a company. But this does not
necessarily mean that recommendation is the only factor that enables a company to
achieve growth in the long run. There might be several other factors that will contribute
to the growth of the company. But, Reichheld’s claim is that recommendations are the
main thing, and it is truly the one and only thing that companies need to attain to manage
and drive business success and growth. This claim raises a number of logical questions.
Will increasing recommendations really be the best method of driving business success?
Will it have more business impact than reducing customer loss? If a company loses a
majority of its customer base per year and the other customers who stay still recommend,
is the company still in good shape? Will recommendation be more powerful than
increasing current customers’ volume, cross-sales, or share of purchase? Will it extend
the lifetime or the lifetime value of the existing customer base?
Recommendations might not always mean the best measure for the growth of a
company. The company might be losing a majority of its high-value customers every
year, although the rest of the customers who are remaining with the company are
recommending the products and services of the company to others. Here,
recommendation will surely not be the only indicator for the growth of the company. The
core NPS concept does not address these basic issues regarding customer loyalty,
although some of these issues were raised and discussed previously by Reichheld himself
(Reichheld, 1996).

2.7 Results where NPS was not the best indicator of growth
Reichheld (2003) has himself accepted the fact that NPS was not the best indicator of
growth in some cases. This means that there must be other better indicator/indicators of
growth in those cases. Reichheld considered about a dozen industries for his analysis.
There were several industries (e.g., cable TV, computer systems, database software)
where Reichheld has agreed that NPS as a measure of growth was simply irrelevant. This
means that there are at least some industries where the concept of NPS as an indicator of
growth will not work. In case of 4 out of 12 industries considered by Reichheld (2003),
NPS was not the indicator of growth. From the above, we see that in case of 4 out of
about 12 industries (i.e., in one-third or 33% of the cases, which is a large proportion)
NPS was not the best predictor of growth. So, in a majority of the cases, NPS was not a
true indicator of company growth. Even when his own results violate the applicability of
NPS as the sole indicator of growth in many cases, Reichheld claims that the NPS is the
only one number that companies need to grow. This does not seem to be logical based on
the above-mentioned example.
216 P.C. Mandal

2.8 The issue of precedence of time

To test the connection between corporate growth and NPS, Reichheld (2003) has used
data, which do not meet the basic criteria required to test causality between variables.
Corporate growth was measured for the period between 1999 and 2002 whereas the
survey conducted to measure recommendations started in the first quarter of 2001. Each
quarter collected 10000–15000 responses covering 400 companies in 12 industries. After
that, NPS for each company was calculated and compared with the respective growth rate
over the years 1999–2002. This means that something that happened in the future was
used as a cause of something that had already happened in the past. This also means that
the companies with higher NPSs were already previously growing. This also points to a
more serious issue of the validity of the research conducted by Reichheld. This is because
there are technical faults in the basic assumptions regarding causality.

2.9 Issue of cross-sectional and longitudinal data

In the survey undertaken by Reichheld and his team, changes in the company growth
were measured longitudinally whereas NPS was not. This raises serious concerns
about the validity of the research because cross-sectional data can be compared only with
cross-sectional data and not with longitudinal data. So, it cannot be claimed that
improvement in the NPS for a particular company resulted in higher company growth
rate. Even then, Reichheld (2003) seems to have ignored this basic element of empirical
research.

2.10 Measurement scale used for capturing customer responses

Reichheld used an 11-point scale, which ranges from 0 to 10 for capturing the customer
responses. Such scales are used when there are distinct differences between each point on
the scale. In the research conducted by Reichheld, although responses were captured on
an 11-point scale, they were finally collapsed into three levels:
‘Promoters’: Those who scored 9 and 10.
‘Passively Satisfied’: Those who scored 7 and 8.
‘Detractors’: Those who scored between 0 and 6.
Several arguments can be given against collapsing an 11-point scale into three levels.
First, each point on the scale is distinct from any other point on the scale and they cannot
be clubbed together without sufficient justification. Second, although three categories
were initially created, only two of those categories, viz., promoters and detractors, were
used to compute the NPS. Third, a rating of 5 should be the mid-point of the scale.
So, this means that a rating of 6 should be considered on the positive side of the scale.
But in the calculation of NPS, a rating of 6 has been associated with the detractors
whereas it should have been associated with the category ‘passively satisfied’. Fourth, the
collapsed categories, which have been created by Reichheld, may not be the best
predictors of consumer behaviour. Fifth, the basis of initially creating 11 points is not
clear. There is no indication as to whether those 11 points were chosen arbitrarily or there
were some conceptual considerations. This particular approach to categorisation and the
 Net promoter score: a conceptual analysis 217

subsequent use of two collapsed categories to create the NPS measure involve
computations that might allow several very different scenarios to produce the same NPS.

2.11 Mathematical nature of net promoter score (NPS)

NPS is calculated by the difference between the percentage of promoters and the
percentage of detractors. So, for two companies having the same NPS, the percentage of
promoters and the percentage of detractors might differ. Even with these differences, the
NPS will indicate that both the companies would experience the same growth rate, which
might not necessarily be true. The analysis required for the two companies would be
different. But if we consider NPS as the only factor affecting the company growth, the
whole analysis will go wrong. The market performances of the two companies would be
totally different. Also, completely different management actions are required to be taken
in each of the two cases. In the above-mentioned situation, NPS would be unable to
predict the company growth rate correctly and would cease to be the only predictor for
growth.

3 Discussion

It needs to be noted that the present analysis does not claim blanket rejection of the
concept of NPS. Companies do need measurement systems to measure customer loyalty
and also measures that might act as a linkage between customer loyalty and company
growth. The concept of NPS proposed by Reichheld has been accepted by a number of
prominent companies all over the world. It has been accepted by companies mainly
because of its simplicity and its immediate connection with the company growth rate,
which is of prime importance to the management of any company. But as stated in this
paper throughout that the rigour, correctness, validity and suitability of a measure cannot
be sacrificed for the sake of its simplicity.
Even if a poor measure is available, the costs of using it might be greater than any
benefits attained. Although in some cases, when there is an urgent need for measurement,
imperfect measurement may be better than no measurement at all, even then it needs to
be recognised that the measurement procedures adopted are flawed and would temper the
conclusions accordingly. Poor measurement imposes an absolute limit on the validity of
the conclusions, which can be reached at. Again, a measurement scale cannot be
economised just for the sake of its simplicity or for reducing the burden to the
respondents. Choosing a questionnaire that is too brief to be reliable is a bad idea, no
matter how much the respondents prefer its brevity. In this light, it is better to have a
reliable questionnaire that is completed by half of the respondents. It yields more
information than an unreliable questionnaire, completed by all respondents. This is
because if the measurement itself is flawed, the amount of information collected is
irrelevant. All the above-mentioned issues need to be kept in mind while using a single-
item questionnaire to measure a construct like customer loyalty and then to find its
linkage with company growth. This is because important decisions might be taken based
on the results obtained.
The aim of this paper has been to critically analyse the conceptual considerations of
NPS. It is well accepted that word of mouth or recommendations by loyal customers are
required for the business of a company to flourish. But at the same time, it needs to be
218 P.C. Mandal

kept in mind that based on the arguments presented earlier, only one number might not
determine the growth of a company. There might be several other factors that will
determine the growth of a company. Managers need to keep this in mind while they use
NPS to measure the business performance of their own companies.

4 Conclusion

The aim of this paper is not to reject the concept of NPS. NPS may be viewed as a
direction with the help of which the companies might assess their present situations.
At the same time, it is important to understand that the one number given by NPS solely
might not determine the company growth rate. NPS may be best viewed as a diagnosing
tool. It is important to understand the difference between ‘one of the important things’
and ‘the important thing’. NPS might be viewed as one of the important things to
measure customer loyalty and consequently an indicator for company growth. But, it is
probably not the only one thing a company has to track for its growth. Managers need to
be careful while assessing their company growth with the help of NPS and should use
other tools along with NPS to assess the company growth rate.

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