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Net Promoter Scores: a leading financial indicator?

We recently discussed the stock-specific use cases for customer satisfaction, specifically examining how it generates superior returns at a lower systematic risk. While the empirical analysis for this premise was demonstrated using the American Customer Satisfaction Index (ASCI), we want to investigate if the correlation holds true for all customer satisfaction metrics.

In this piece, we discuss Net Promoter Scores (NPS) – a popular measurement of customer loyalty – and whether it is an appropriate metric for investment managers aiming to predict company financial performance.

TEN WORDS AND I’M YOURS…HOW LIKELY ARE YOU TO RECOMMEND US TO A FRIEND?

Thanks to Fred Reichheld of Bain & Co., this question has plagued our inboxes following nearly every purchase we make. Depending on your selection on an 11-point scale (0 = very unlikely, 10 = very likely), any company that employs a customer experience system would be able to immediately classify you into one of three types of consumers: detractors, passives, and promoters.

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Author

Chashaka Wimalaweera Analyst (Asia)