Tuesday, February 21, 2006

Usable research

One of the really enjoyable people I work with at ICR is our VP of Marketing, Michael Brenner. Recently, he pointed me to an article in B2B Online that discusses how General Electric has rolled out an internal performance measurement system called Net Promoter Score (NPS), a fairly simple index that indicates whether customers of a particular division would recommend GE to other businesses or colleagues.

The thing is, this isn't something that GE cooked up. NPS is the brainchild of Fred Reichheld, whose concept was adopted by Satmetrix Systems, on whose board of directors Reichheld sits. Does GE like it? I would say so, being that General Electric's CEO Jeff Immelt says, "This is the best customer metric I've ever seen."

The Net Promoter Score probably couldn't be any simpler. To calculate a company's NPS, take the percentage of customers who are promoters (those who are highly likely to recommend the company or its products), and subtract the percentage who are detractors (those who are less likely to recommend the company or products). That's it.

Can customer growth and profitability really be this simple? I suspect not, at least not in all cases. There are some companies that have probably had profoundly high NPS ratios -- off the cuff, I can think of Saturn, Apple Computer (pre-iPod), and Iridium as having very high ratios of promoters to detractors among their customers -- but these companies have had a somewhat notorious track record of translating that customer loyalty to financial success.

Similarly, I could think of a few successful companies that might not generate the highest NPS ratios. (I'm imagining that customers of Playboy TV, Hummer, and Microsoft would pan out with low NPS readings.) In the case of Playboy, I'm not sure customers are actively advocating to friends and relatives their private relationship with that enterprise. In the case of Hummer, one would think that most owners have discovered that talking with acquaintances about their monster truck (in this day of $2.69 per gallon gasoline) brings them more pity and scorn than praise and admiration. Furthermore, part of the mystique of owning a Hummer is that you're probably the only one on the block who drives one, so why recommend it to a neighbor or a friend? And, in the case of Microsoft, I'd bet that the company has more true "detractor" customers than promoters. Yet, Microsoft is valued at $275 billion.

If I may come back to Michael Brenner, he has voiced to me some criticisms of our market research industry. One point of his is that in business (not so much in academia or in public policy), market research is being driven by usability. Usability refers to a low amount of effort required to translate a research finding into an action or a decision. In Brenner's opinion, this is also what is driving the growth in Internet-based research methodologies. The other side of this argument is that accuracy is becoming less important, based on budget and time pressures -- something Brenner and I have already discussed and agreed on.

Brenner concludes that CEOs speak to the masses, so if a research finding is simple and explainable, it will be used by CEOs, CFOs, Marketing, and other business influencers to drive their business.

In light of that, we in the research industry need to think more about making our findings usable.

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