To establish the correlation between relative NPS and growth, Bain teams identified the relevant competitors in a business and measured the Net Promoter scores of each competitor using the same methodology and sampling approach. These relative Net Promoter scores were then correlated with organic growth measures. In most industries, NPS explained roughly 20 percent to 60 percent of the variation in organic growth rates among competitors. On average, an industry’s NPS leader outgrew its competitors by a factor greater than two times.
Overall, in other words, a company’s NPS is a good indicator of its future growth. But the relationship is stronger in some industries than in others. It’s strongest when:
- The industry includes a substantial number of players, so customers have a real choice
- Network effects are minimal, so customers can easily switch providers
- The industry is mature, with widespread adoption and use of its products or services
Wherever these conditions do not hold, the relationship may be weak or inconclusive.
Other factors may undermine the relationship as well, at least in the near-term. Companies with deep pockets can open loads of new stores or flood the market with promotions or discounts. Companies with partial monopolies and companies that dominate distribution channels sometimes grow despite weak Net Promoter scores. And technological breakthroughs can create growth surges. But while loyalty—as indicated by high Net Promoter scores—isn’t the only factor determining growth, profitable organic growth cannot long be sustained without it.
There’s another important caveat to the connection between high Net Promoter scores and growth: a high score in and of itself is not the real objective. A high NPS by itself it does not guarantee success. NPS merely measures the quality of a company’s relationships with its current customers, and high-quality relationships are a necessary but insufficient condition for profitable organic growth.
For example, HomeBanc Mortgage Corporation, which was featured in the first edition of the book, had the highest NPS among mortgage banks at the time. But it still fell victim to the mortgage meltdown of 2007, which swept HomeBanc and many of its competitors into bankruptcy. A company must build an army of loyal customers, as HomeBanc did, but it will squander the potential they create if it can’t make effective decisions about risk, pricing, innovation, cost management and everything else necessary for sustainable, profitable growth.
Learn more about how loyalty can increase growth: