Does the effect of individual Net Promoter Scores (NPS®) predict risk of cancellation?

This article was supplied by The Retention People

In this study we go a step further on our research into Net Promoter Score® and examine whether the NPS® provided by a member can predict the risk of them cancelling in the 12 months following their completion of the survey.  The answer is YES! Key findings from this latest report produced by TRP below:

• Sex, age and length of membership all impact the NPS® with more promoters and fewer detractors in females than males.
• In males the proportion of promoters increases with age whereas in females the proportion of promoters declines.
• For each month of membership after completing the NPS®, a higher proportion of members classified as detractors cancel compared to passive’s and promoters.
• The lowest rate of cancellation each month after NPS® is seen in the members classified as promoters although the difference is only slightly better than members classified as passive.

Most notably, being classified as a detractor significantly increases the risk of cancellation after completion of the NPS® and the increased risk occurs even in the first month after NPS®.

What is NET Promoter Score®?

Net Promoter Score® (NPS®) is a measure of customer loyalty developed by Fred Reichheld and his associates at Bain & Company and Satmetrix, and used by many leading brands across the world including Apple, Amazon and Harley Davidson.   Published in 2006 in the ground breaking book ‘The Ultimate Question – Driving Good Profits and True Growth’, a company’s Net Promoter Score is obtained by asking customers a single question on a 0 to 10 rating scale: “How likely is it that you would recommend our company to a friend or colleague?” Based on their responses, individual customers can be categorised into one of three groups: Promoters (9-10 rating), Passives (7-8 rating), and Detractors (0-6 rating).  At an organisational level, the percentage of Detractors is then subtracted from the percentage of Promoters to obtain a Net Promoter Score. The NPS® question is typically followed up with a ‘why’ question allowing the customer to explain why they gave the score they did and the company to capture valuable data on how to improve their score.

In TRP’s previous study, The Ultimate Question we reported the response rates to NPS® surveys by member characteristics such as age, sex and length of membership. We also examined whether the NPS® was associated with the number of visits a member made in the 12 weeks after they completed the NPS® and found that, even after controlling for visit frequency prior to the survey, promoters attended the club more frequently than detractors. In this study we go one step further and examine whether the NPS® predicts the risk of cancelling in the 12 months after completion of the NPS®. The sample for this study was 19,059 members from a variety of clubs who joined between January 2009 and March 2013. During the 12 months following completion of the NPS® there were 3,393 cancellations.

NPS® scores by member characteristics

In this sample of members the proportion classified as ‘Detractors’, ‘Passive’, and ‘Promoters’ was 18%, 29% and 53% respectively. Figure 1 shows how the proportion of members in each NPS® group according to members’ sex, age group and period of membership.  There are more promoters in females than males and fewer detractors. There is little difference in NPS® group across age groups but the proportion of promoters declines the longer a person has been a member and the proportion of detractors increases.

Fig 1. NPS® by sex, age group and period of membership (months since joining)

Figure 2 shows the interaction between age and sex on the proportion of members classified as promoters. In males the proportion of promoters increases with age whereas in females the proportion of promoters declines.

Fig 2. The proportion of promoters by sex and age group

Does NPS® predict the risk of cancelling in the 12months following the score?

For each month of membership after completing the NPS®, a higher proportion of members classified as detractors cancel compared to the other two groups a (Figure 3). The lowest rate of cancellation each month after NPS® is seen in the members classified as promoters although the difference is only slightly better than members classified as passive.

Fig 3. The proportion of members who cancel each month after joining by NPS® group

Does the association between NPS® and the rate of cancelling very by sex, age group and length of membership?

Figure 4 shows that the effect of NPS® on the risk of cancelling is different for male and female members. Male and female detractors have the highest rate of cancellation with little difference between them. However, ‘passive’ males have a lower rate of cancellation compared to females. Further, the difference in risk of cancellation between females classified as passive and promoters is minimal whereas in males it is more marked.

Fig 4. Cancellation rate (per thousand members per month) by NPS® and sex

As reported many times before, age is associated with a reduction in the risk of cancelling this can also be seen here (Figure 5). Promoter’s age 35-44 years have the same rate of cancellation as detractors aged 45+ years. Across age groups, being a detractor is associated with a higher cancellation rate. Differences in cancellation rates are mainly between detractors and passive members with only marginal differences between passive members and promoters.

Fig 5. Cancellation rate (per thousand members per month) by NPS® and age group

Figure 6 shows marked differences in the effect of NPS® group on cancellation rates by period of membership. For members in the first 3-6 months of their membership being classified as passive rather than a detractor is associated with a reduction in cancellation rates. Being a promoter was not associated with any further reduction in cancellations. For members 9 months into their membership the difference in cancellation rates for the 12 months after NPS®, between detractors and passive was particularly marked. In addition, there was an additional reduction in cancellations between passives and promoters. For longer term members (12 and 24 months) promoters had a reduction in cancellations compared to passives that was of a similar magnitude to the difference between detractors and passives.

Fig 6. Cancellation rate (per thousand members per month) by NPS® and period of membership (months since joining)

How much do detractors increase the risk of cancellation?

In this group of members detractors were 58% more likely to cancel their membership in the 12 months after completing the NPS® compared to members classified as passive or promoters. In the passive and promoter members 75% of members survived approximately 10 months prior to cancellation compared to 7 months in detractors. These results remain even after taking account of differences in cancellation rates due to sex, age, length of membership and usage patterns.

Conclusions and Implications

This report shows that sex, age and length of membership are all associated with NPS® group.  Being classified as a detractor significantly increases the risk of cancellation after completion of the NPS® and the increased risk occurs even in the first month after NPS®. The additional benefit, in terms of reduced cancellation rates, of being a promoter is restricted to males and members who have been members for at least 9 months.

The excess risk of being classified as a detractor is true for both genders, all age groups, any length of membership and for any club usage level. Overall, if all members were classified as either passive or promoters, rather than detractors, then approximately 6% of the 3,393 cancellations observed in the 12 months following NPS® would have been avoided. This increases to 10% of cancellations avoided in members 9 months into their membership.