Tag Archives: predictive validity

Does Customer Recommendation Predict Company Growth?

Fred Reichheld

Fred Reichheld

Net Promoter Scores gauge customer loyalty, expressed by willingness to recommend and advocate the company’s products and services to others.

Its creator, Fred Reichheld of Bain & Company, posited that NPS is a more meaningful measure of a company’s relationship with its customers than customer satisfaction metrics because, he argued, it is correlated with revenue growth.

Richard Owen

Richard Owen

Satmetrix Executives Richard Owen and Laura Brooks further articulated this linkage between customer loyalty and revenue growth.

NPS’s customer loyalty metric is based on 10-point ratings in response to just one question: How likely is it that you would recommend our company/product/service to a friend or colleague?

Laura Brooks

Laura Brooks

“Promoters” respond with a score of 9 or 10 whereas “Detractors” provide ratings of 0-6, and scores of 7 and 8 are ignored in this system, leading to the question of why they are included.
NPS is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters.

Timothy L. Keiningham

Timothy L. Keiningham

Critics, including Ipsos Loyalty’s Timothy L. Keiningham, Bruce Cooil of Vanderbilt, BI Norwegian School of Management’s Tor Wallin Andreassen, and Lerzan Aksoy of Fordham, argue that American Customer Satisfaction Index (ACSI) is an equally accurate predictor of revenue growth.

They reinforced the frequently-replicated finding that actual behaviors, including positive and negative “word of mouth (WOM)are better predictors than attitudes about possible future behaviors, in their evaluation of longitudinal data from 21 firms and 15,500-plus interviews from the Norwegian Customer Satisfaction Barometer.

Claes Fornell

Claes Fornell

Likewise, University of Michigan’s Claes Fornell, Forrest V. Morgensen, and M.S. Krishan, with Sunil Mithas of University of Maryland, found that “it is possible to beat the market consistently by investing in firms that do well on the ACSI.”

Companies that invest in initiatives to increase customer satisfaction, reflected in higher scores than competitors on the American Customer Satisfaction Index (ACSI), also performed better in measures of market value.

More surprisingly, they found that these higher returns are associated with lower stock market risk, probably due to “stock market imperfections” that require time to adjust to news of strong ACSI performance.

Bob Hayes

Bob Hayes

Similarly, customer satisfaction and loyalty researcher Bob Hayes contended that “likelihood to recommend” measures the same construct and has the same predictive value of business growth as customer loyalty questions such as:

  • Overall satisfaction
  • Predicted likelihood to purchase again, evaluated through his Purchasing Loyalty Index (PLI)
  • Number of referrals through “word of mouth” and “word of mouse,” calculated in his Advocacy Loyalty Index (ALI)
  • Resistance to defection to competing offers, measured with his Retention Loyalty Index (RLI).

    Hayes Customer Loyalty Grid

    Hayes Customer Loyalty Grid

Hayes’ findings reinforced the caveat that actual behavior is a more accurate than attitudes about likely future behavior, also demonstrated by University of Connecticut’s V Kumar, J Andrew Petersen and Robert Leone in their analysis of telecoms and financial service customers willing to recommend their service provider.

V Kumar

V Kumar

Only about one-third of these potential Advocates actually recommended the provider, and only about 13% of those referrals actually led to new customers.
Kumar and team called this the “promise gap” and suggested that it can be mitigated by delivering beyond customer expectations, even when a customer complains.

Neal A Morgan

Neil Morgan

Indiana University’s Neil A. Morgan and Lopo Leotte Rego of University of Iowa added a wrinkle to critiques of Net Promoter Scores as the sole necessary indicator of customer satisfaction.

Like Keiningham’s team and Hayes, they found that recommendation intentions (“net promoters”) have “little to no predictive value.
Unlike Hayes, their results found little predictive strength for actual behavior in average number of recommendations.

Instead, Morgan and Rego argued for multiple measures of customer satisfaction as the best predictor of revenue group.
Additionally they found that Top 2 Box satisfaction scores – the sum of percentages for the top two point on surveys of purchase intent, satisfaction or awareness – provided “good” predictive value.

Daniel Schneider

Daniel Schneider

The Net Promoter Score also had the lowest predictive validity when compared to three other scales by Stanford’s Jon Krosnick and Daniel Schneider, with Intuit’s Matt Berent and Hays Interactive’s Randall Thomas.

To improve the NPS, the team recommended replacing the 11 point unipolar rating scale with a 7 point bipolar scale from positive to negative impressions.

Jon Krosnick

Jon Krosnick

Their work replicated Hayes’ finding that liking and satisfaction with a company are highly significantly predictors than the likelihood of recommending, so Krosnick’s team recommended including questions like:

  • Overall, how satisfied are you with the each of the following companies?
  • How much do you like or dislike each of the following companies?

They uncovered correlations among measures of customer experience, and showed that liking is the best predictor of the number of recommendations and satisfaction.

Leon Festinger

Leon Festinger

Customers typically form more positive evaluations after the decision to purchase, probably due to validating purchase choices and reduce cognitive dissonance of purchase dissatisfaction, described by Stanford’s Leon Festinger.

These findings suggest that Reichheld’s claim of NPS as “the only question you need to ask” may be unsubstantiated, and that multiple measures of customer experience are more accurate predictors of a company’s revenue performance.

-*How credible is “willingness to recommend” a company as a predictor of its revenue growth?

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Neuronal Recordings Suggest “Free Will” Might be “Free Won’t”

Itzhak Fried

Itzhak Fried

People may think they consciously control their actions and performance, but findings from UCLA’s Itzhak Fried and Roy Mukamel with Gabriel Kreiman of Harvard challenged conventional assumptions about “conscious intention” and “free will. ”

Roy Mukamel

Roy Mukamel

Fried, Mukamel, and Kreiman adopted Benjamin Libet’s procedure to assess “free will” at University of California, San Francisco, using intracranial recordings to identify neuron activity that precedes and predicts volunteers’ decision to move a finger.

Gabriel Kreiman

Gabriel Kreiman

Volunteers, who had electrodes implanted in their brains to record early indicators of seizures, pressed a button when they chose and indicated the clock’s hand position when they decided to press the button.

Libet’s process marks the time a voluntary action occurred, and the volunteer’s report of when the decision to act was completed.
These data points enabled researchers to identify specific neurons that were active during the time around the conscious decision to act and the completed action.

Benjamin Libet

Benjamin Libet

About a quarter of neurons in the frontal lobe’s supplementary motor area (responsible for motor activity coordination) and the anterior cingulate cortex (which directs attention and motivation) changed activity before volunteers said they wanted to press the button.

Spontaneous, voluntary acts were initiated in the cerebrum about 200 milliseconds before the person was consciously aware of the ‘decision’ to act, and researchers predicted with greater than 80 percent accuracy whether a movement had occurred and when the decision to make it happened.

Libet’s team suggested that unconscious brain processes, which are more rapid than conscious decision-making (“free will”), are the instigators of volitional acts.
However, these researchers also proposed that “free will” is more accurately described as “free won’t” because conscious volition can exercise “veto power” over intentions to act.

Kreiman extended this research to better understand loss of voluntary movement in Parkinson’s disease when he pre-empted volunteers’ movements after observing brain activation in the supplementary motor area and the anterior cingulate cortex.
StopHe activated a “stop” sign on a screen in front of each volunteer before the person actually moved, and reported that his volunteers frequently said, ”That was weird. It was like you read my mind.”

Nalini Ambady

Nalini Ambady

These brain studies complement Stanford professor Nalini Ambady’s work at Harvard University on “thin slicing”, or the experience of “knowing before you know.”
Also described as “intuition” or “unconscious cognitive processing,” these findings suggest that the conscious mind is the last to know when we make a decision.

-*How do you manage the discrepancy between unconscious mental processes and conscious awareness of them?

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What is Your Signature Story in Behavioral Interviews?

Behavioral interviews require advance preparation for both the interviewer and the job applicant, in contrast to the frequently unplanned volley of unstructured Q&A intended to assess candidate fit and potential effectiveness in a work role.

Tom Janz

Tom Janz

Behavioral Interviews, developed by Tom Janz, now Chief Scientist at peopleassessments.com, ask job candidates to provide examples of past behaviors in specific situations deemed relevant to the target role.

The questions are typically framed as an invitation to tell a story about a situation, a challenge, the candidate’s action or solution, and the outcome:

  • Give an example of an occasion when you used logic to solve a problem
  • Think of a goal you reached and tell me how you achieved it
  • Describe a decision you made that was unpopular and how you implemented it
  • Tell me about a time you went “above and beyond the call of duty
  • When was the last time you handled interruptions to your schedule?  How did you do it?
  • When and how did you convince a team to work on a project they didn’t like?
  • Provide an example of handling a difficult situation with a co-worker
  • Tell me about how you worked effectively under pressure

Sometimes the questions are structured to explicitly request that the candidate reply in the “STAR” format:

  • Situation
  • Task
  • Action
  • Results

Candidates increase odds of memorably and skillfully conveying relevant qualifications by preparing “Signature Stories” – theirs alone – to demonstrate how they resourcefully and innovatively:

  • Solved challenging problems
  • Improved strained work relationships
  • Met deadlines and budget
  • Applied “Lessons Learned”
  • Initiated transformational change
  • Demonstrated courage and integrity
Gary Oliphant

Gary Oliphant

Besides being noticed and remembered, signature stories told in behavioral interviews can help both the candidate and interviewer evaluate whether the fit between the role requirements and the candidate’s skills would likely lead to strong future performance.

Becky Oliphant

Becky Oliphant

Evidence for the predictive validity of signature stories told in behavioral interviews was provided by Gary Oliphant and Becky Oliphant of Stetson University with Katharine Hansen of quintcareers.com in their evaluation of 10 Gallup Organization “Life Themes” relevant to loan sales.
From these signature stories, the researchers accurately predicted post-hire performance and retention at a large financial sales organization.

Katharine Hansen

Katharine Hansen

Stories are 22 times more memorable than facts or figures alone,” contends Jennifer Aaker of Stanford, and she offers four elements that increase the impact of signature stories:

  • Goal: Defines a clear purpose and Call to Action, conveying what the listener should think, feel, do
  • Interest: Attracts focused attention by using a “hook” of surprising truth, visual effect, unusual problem-solving approach
  • Caring: Establishes empathic emotional connection with the storyteller’s challenge and journey to reach a meaningful goal
  • Memorable: Makes the story compelling, unforgettable, “re-tellable” and worth “going viral.”
Jennifer Aaker

Jennifer Aaker

Aaker suggests testing stories by asking others to what extent the story:

  • Changed the listener’s perspective
  • Resonated with the listener’s experiences, values, interests
  • Delivered “Moments of insight”
  • Had incomprehensible, inconsistent, or disjointed parts

She says that the mark of an effective “signature story” is that “others look at you differently” and the story moves you closer to a goal.

-*How do you craft dramatic, memorable Signature Stories to illustrate your values and capabilities?

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