Value Speaks Louder than Words - Client Briefing
By Jock Lawrie, Alonso Matta and Ken Roberts
Management has recently been attracted to the notion that advocacy in the form of a Net Promoter Score (NPS) provides insight into market success and according to some is the only marketing metric management needs to focus on. For example, the cover story in the September 2006 edition of CFO magazine features an interview with Trevor Schauenberg, Vice President of GE Capital Solutions Australia, espousing the insight provided by the NPS as a managerial metric.
“At a recent strategic planning session we put all of our business units on a matrix showing two years of growth rates and discovered that the units with the highest growth rates had NPS scores of 50 per cent and above. Conversely, the business units that scored 30 per cent or lower had very low growth rates.”
What Schauenberg liked most was the correlation between advocacy and revenue. However, correlations do not imply causality nor do they suggest one variable is a leading indicator for another. What Schauenberg and executives like him are discovering is the well documented power of relative positive word-of-mouth on growth rates in particular for intangible services. Buyers do not suddenly advocate; a management strategy comes first. This is then followed by execution, which includes crafted communication, followed by customer and (hopefully) non-customer experience and then positive word-of-mouth. Positive word-of-mouth adds critical salience to marketing claims which aids in building brand momentum. The process is not always exactly in that order but it’s difficult to imagine word-.of-mouth occurring ahead of management strategy. What is proven in this Client Briefing is that ideally share gaining strategy is based on value (price and quality) to the buyer.
Our analysis based on more than ten years of data, is clear that the NPS is statistically insignificant in explaining changes in market share and that other measures, specifically value, are significant in explaining changes in market share. Once a brand has built momentum, advocacy can provide insight into the velocity of that momentum and, indeed, be correlated with relative revenue growth, but what troubles most executives is understanding which price and non-price drivers ignite changes in market share. If management crave affirmation about past decisions then advocacy is perhaps an appropriate single measure. If, instead, management want insight into the next customer led discontinuity likely to drive changes in market share, then the NPS is a most curious choice of metric. View PDF for full text.
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