Are Promoters Valuable Customers? An Application of the Net Promoter Scale to Predict Future Customer Spend

In: Australasian marketing journal: AMJ ; official journal of the Australia-New Zealand Marketing Academy (ANZMAC), Volume 26, Issue 1, p. 3-9

Abstract

The Net Promoter Score (NPS) is widely used in industry to measure loyalty and predict revenue growth. The mechanisms underpinning this revenue growth are thought to be (i) positive recommendation from loyal customers to potential customers, and (ii) increased purchases from the existing base of loyal customers. These claims are controversial, with both the methodology and the performance of NPS being challenged by a number of researchers. The present study adds evidence to this debate through the analysis of a repeated cross-sectional data set (n = 2785) from a services company operating in a business to business context in the New Zealand primary sector. The data include recommendation scores matched to past, current and future revenue, at both the aggregate and individual level, over a five-year period. The analysis of this data provides directional support for the association between NPS and company revenue growth, and confirms that promoters do spend more in the current year. However, the analysis shows promoters to be a relatively minor and inconsistent source of same-customer revenue growth, with same-customer growth mostly arising from a general increase across the whole customer base.