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Customer experience quality surpasses NPS in correlation to financial performance, customer loyalty
and customer satisfaction
Michele Bennett, PhD
Anthony Molisani, PhD, MPH
Last Updated April 15, 2020
Supported by Avanade
Abstract
Customer loyalty and satisfaction drives business. For over a decade, NPS has been touted as the most
important measure of loyalty and predictor of business growth, even as researchers have struggled to
consistently prove the claim. Other measures of customer experience, loyalty and satisfaction have
arisen that challenge the supremacy of NPS, even as hundreds of companies rely on NPS for its simplicity
and promise of business growth. Measuring 1605 US-based customers of US publicly traded companies,
this study has found that while NPS was positively and significantly correlated with customer loyalty,
satisfaction, and financial performance, customer experience quality (CEQ) surpassed NPS in all three
measures. The research also showed that CEQ was strongly correlated with NPS, suggesting that the two
metrics are synergistic. The findings demonstrate that there is provable value in exploring metrics
beyond NPS that companies may be missing and thereby limiting their growth and competitiveness.
1.0 Introduction
In 2001, Fredrick Reichheld (2003) found that Enterprise Rent-A-Car measured the customer experiences
of their offices on two aspects, quality of experience and willingness to rent again, and only counted the
highest ratings. Enterprise also found that the highest ratings correlated to profitability. From these
learnings, the Net Promoter Score was created as a hallmark of customer loyalty (Reichheld, 2003), and
has maintained its relevance to this day as hundreds of companies anxiously await and track their scores
and those of their competitors (Gill, McCarthy, & Grimmett, 2019).
However, over the years, researchers have struggled to reproduce the foundational results (Reichheld,
2003) showing NPS has a strong and positive impact on profitability and customer satisfaction (Eklof,
Podkorytova, & Malova, 2018; Kristensen, & Esklldsen, 2014). Other metrics also have outperformed
NPS in measuring loyalty and financial performance (Keiningham, Cooil, Wallin Andreassen, & Aksoy,
2007). In addition, NPS ignores one of original premises of Enterprise’s measures – quality of experience
(Reichheld, 2003), and that quality of customer experience can be more consequential to a company’s
bottom line than NPS (Maklan & Klaus, 2011; Mbama, 2018).
This research posits that NPS falls short of Reichheld’s (2003) claim that it is the ultimate measure of
customer loyalty and corporate growth, and that quality of experience is more impactful to customer
satisfaction, loyalty, and financial performance. Companies relying on NPS as their primary customer
metric are missing shortfalls in customer experiences that could be costing customers and profitability.
2.0 Literature Review
2.1. Net Promoter Score (NPS)
Net Promoter Score (NPS) has long been held as one of the most important measurement of customer
experience since its inception (Gill et al., 2019; Reichheld, 2003). Reichheld (2003) reported that the
answer to the simple NPS question, “How likely is it that you would recommend [company X] to a friend
or colleague?” (p.49), was aligned with revenue growth, and is the most important metric that a
business needs to track for success.
Over the years, other studies have sought to replicate the results of Reichheld (2003) with varying
outcomes. For example, Keiningham et al. (2007) found that while NPS was correlated with revenue
growth, however demonstrated that American Customer Satisfaction Index (ASCI) had a stronger
correlation to revenue than NPS, putting the first crack into the superiority of NPS. ASCI is a
multidimensional customer metric that includes customer satisfaction, customer expectations,
perceived quality, perceived value, customer complaints, customer loyalty (ASCI, 2019) and is a similar
definition to the one used in this research, which is also part of a larger study (Bennett & Molisani,
2020).
In more recent studies, NPS has been shown to be a poor predictor of customer loyalty and satisfaction
(Kristensen, & Esklldsen, 2014), with the ASCI and European Performance Satisfaction Index (EPSI) have
been found to be more reliable, trustworthy, and consistent measures of customer satisfaction and
financial performance (Eklof et al., 2018; Kristensen, & Esklldsen, 2014). Study authors caution against
using NPS as a sole, or even the most critical tool for customer experience decisions.
2.2 Customer Experience Quality (CEQ)
Metrics such as ASCI and EPSI have become more prominent in the last few years, and define a
multidimensional perspective of customer experience that includes constructs such as corporate image,
customer expectations, perceived value, product quality, customer loyalty, and service quality (Eklof,
Podkorytova, & Malova, 2018; Kristensen, & Esklldsen, 2014). The concept of Customer Experience
Quality (CEQ) was developed to identify the most important attributes that align with customer loyalty,
satisfaction and recommendations for relationship marketing and customer experience programs
(Maklan & Klaus, 2011). CEQ was defined by Maklan and Klaus (2011) as constructs around peace of
mind (including expertise, process ease, convenience, relationships); outcome focus (including results-
focused, innovation, past experience); moments of truth (flexibility, perceived risk, interpersonal skills,
service quality); and product experience (freedom of choice, comparisons, and employee experience).
The definition suited the banking industry as it evolved from products and services to experiences as the
new competitive differentiator (Lemke, Clarke, and Wilson, 2011; Maklan & Klaus, 2011).
Mbama (2018) used Maklan and Klaus (2011) and additional existing research (Gronholdt, 2019; Lemke
et al., 2011) to define a definition of CEQ that could span industries and could measure financial
performance. This research used the base assumptions and constructs of Mbama (2018) and defined
CEQ as perceived value, convenience, functional quality, service quality, brand trust, employee-customer
engagement, perceived usability, perceived risk, and technical innovation. The financial performance
metric used in this study is market capitalization. Market capitalization (MC) has a strong and growing
impact on the economy and is a recognized global metric of the value of a company (Pavone, 2019).
3.0 Research Methodology
3.1 Conceptual Model for Research
Given the differences in findings across studies concerning NPS and its relationship with loyalty and
satisfaction, differing definitions of customer experience, and inconsistent findings, this study extends
the work of others (Gronholdt, 2019; Lemke et al. 2011; Maklan & Klaus, 2011; Mbama, 2018), and
examined the relationships between CEQ, NPS, CLY, CSAT, and financial performance.
An online questionnaire was used to collect data from 1605 US-based customers of US publicly traded
companies in February 2019. The questionnaire asked participants about their perceptions and beliefs
about the companies with which they do business or from which they purchase. The 54 questions were
aligned with the factors positioned in Figure 1 below.
Figure 1: Conceptual Model for Research
3.2 Hypothesis Development
Multi-dimensional customer experience metrics similar to CEQ have been shown to the correlated with
financial performance (Gronholdt, 2019) as well as to customer satisfaction and loyalty (Mbama (2018)
but not all studies have found connections between customer experience, loyalty, satisfaction, and
financial performance (James, James, Babin, & Parker, 2019).
Studies have also struggled to repeat Reichheld (2003) and NPS correlations with financial performance
(Kristensen & Eskildsen, 2014), and have shown disparity of findings with customer loyalty and
satisfaction (Keiningham et al., 2007; Kristensen & Eskilden, 2014) However, Mbama (2018) found NPS
highly correlated with loyalty but not with satisfaction, differing from Reichheld (2003), and not with
CEQ, aligning with Keingham et al. (2007).
Therefore, this study seeks to provide more information to the body of knowledge surrounding
customer experience concepts and financial performance.
3.2.1 CEQ Hypotheses
Perceived Value
Convenience
Functional Quality
Service Quality
Brand Trust
Customer-Employee
Engagement
Perceived Usability
Perceived Risk
Technical Innovation
Financial Performance
D
Customer Experience
Quality
Net Promoter Score
(NPS) Customer Loyalty
Customer Satisfaction
H10
H1
H10
H4
H10
H6
H10
H10 H2
H3
H5
H5
H10
H7
H1: There is a significant correlation between CEQ and MC
H2: There is a significant correlation between CEQ and CLY
H3: There is a significant correlation between CEQ and CSAT
3.2.2 NPS Hypotheses
H4: There is a significant correlation between NPS and MC
H5: There is a significant correlation between NPS and CLY
H6: There is a significant correlation between NPS and CSAT
3.2.3 CEQ and NPS
H7: There is a significant correlation between CEQ and NPS
4.0 Research Findings
The multi-dimensional CEQ was positively and significantly correlated with MC and stronger than the
correlation between NPS and MC as shown in Table 1. The study accepted H1 and H4 contrary to
Mbama (2018) but in support of Gronholdt (2019).
CEQ was strongly and significantly correlated with CLY and CSAT, supporting Klaus and Maklan (2013),
Maklan and Klaus (2011) and Mbama (2018), and the study accepted H2 and H3. NPS was also strongly
and positively correlated with CLY and CSAT, and the study accepted H5 and H6. Mbama (2018) did not
find a positive relationship between NPS and CSAT. but did between NPS and CLY. Kristensen and
Eskildsen (2014) found NPS to have a weak and unreliable relationship between CSAT and CLY, and the
relationship between CLY and CSAT was stronger with CEQ than with NPS. The results of this study align
with Kristensen and Esklidsen (2014).
NPS and CEQ were strongly and positively correlated, which is counter to the findings of Keingham et al.
(2007) and Mbama (2018). The study accepted H7, which is a novel finding.
Table 1: Correlation Results
Hypothesis
Pearson Correlation
Outcome
H1: There is a significant correlation
between CEQ and MC
r = .118, p = .000**
Accept
H2: There is a significant correlation
between CEQ and CLY
r = .841, p = .000**
Accept
H3: There is a significant correlation
between CEQ and CSAT
r =. 781, p = .000**
Accept
H4: There is a significant correlation
between NPS and MC
r = .086, p = .000**
Accept
H5: There is a significant correlation
between NPS and CLY
r = .799, p = .000**
Accept
H6: There is a significant correlation
between NPS and CSAT
r =. 697, p = .000**
Accept
Hypothesis
Pearson Correlation
Outcome
H7: There is a significant correlation
between CEQ and NPS
r =. 761, p = .000**
Accept
*significant at p <= .05; ** significant at p <=.01
5.0 Discussion and Implications
5.1 Customer Loyalty and Satisfaction
In this study, CEQ and NPS were both positively and significantly correlated with CLY and CSAT. The
difference between the correlation between CEQ and CLY (r = .841, p = .000) was 5.12% stronger than
the correlation between NPS and CLY (r = .799, p = .000). Mbama (2018) also found a stronger
correlation between CEQ and CLY than between NPS and CLY, with a difference of 22.9%. The
difference between the correlation between CEQ and CSAT (r = .781, p = .000) and NPS and CSAT (r =
.697, p = .000) was 100.37%. Mbama (2018) found a much stronger correlation between CEQ and CSAT
than between NPS and CSAT as well, with a difference of 105.15%.
The results of this study provide additional evidence that NPS is not the only “one number you need to
grow” (Reichheld, 2003, p46) when measuring customer loyalty and satisfaction, and a multi-
dimensional metric that includes emotional, attitudinal, and quality-based factors is needed (Gao,
Merelo-Polo, & Sese, 2019; Gronholdt, 2019; Keiningham et al., 2019; Mbama, 2018) to capture the sum
of a customer’s experience with a company’s products and services.
5.2 Financial Performance
The correlation between CEQ and MC (r = .118, p = .000) is 31.37% stronger than the correlation
between NPS and MC (r = .086, p = .000). Gronholdt (2019) found a similar outcome of multi-
dimensional CX and financial performance. This study confirmed the original premise of Reichheld
(2003) and the positive impact of NPS on company growth but revealed a more impactful metric in CEQ
than NPS that companies need to consider.
6.0 Conclusion
This research confirmed that NPS remains an important metric of customer loyalty, satisfaction, and
company financial performance. However, NPS is not the most important metric a company needs to
rely on as proclaimed by Reichheld (2003) and that measuring the quality of customer experiences can
mean stronger loyalty, satisfaction, business performance, and competitiveness. In addition, NPS does
not provide insight into the areas of customer experience to improve to increase scores (Fisher &
Kordupleski, 2018), so organizations are left with costly trial and error that may not just cost customers
but unknowingly make experiences worse. CEQ provides multiple avenues for improving experiences,
which can each be measured separately so companies can knowingly focus on the most impactful areas.
This study and others have proven that CEQ provides be an enormous advantage over NPS, especially in
customer satisfaction and financial performance. Companies must look beyond NPS to ensure that their
experiences are not just keeping customers but realizing their expectations in business value.
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