Hard data better than sci-fi ratings

In an episode of the Netflix series Black Mirror, everyone constantly rates everyone else online. Low scorers are social outcasts. The obsession with ratings is not confined to sci-fi dystopias. Businesses’ demands for feedback are becoming endless — and self-defeating.

The glut of customer surveys is a product of the smartphone era. But they are increasingly based on an idea that predates it, the “net promoter score” (NPS), a measure of how far a company’s “promoters” outweigh “detractors”. Promoters vote nine and 10 when asked: “On a scale from 1-10, how likely are you to recommend our company?” Detractors give marks of six or below.

A score often says more about the scorer than the business. Millennials tend to be stingy with praise, a survey found. The data is valuable, all the same. So are the companies that process it. Survey software maker Qualtrics was bought by Germany’s SAP for $8bn in November 2018. Medallia, another customer feedback management software company, was capitalised at $4.5bn when it came to the market in July.

Companies use NPS as a management tool and a way to benchmark competitors. Many investment analysts, private equity executives and regulators do too. UK regulators force banks to publish their scores in branches. NPS can determine bosses’ pay. IAG CEO Willie Walsh lost some of his 2018 bonus because scores were low.

NPS is a tougher measure than customer satisfaction . But some academics think NPS has been oversold. Scores can rise even as unhappy customers switch to rivals. Sometimes it seems more about public relations.They believe it would be better to report data to investors that can be audited: churn rates, revenue per customers, cost per new customer acquired. When a business pleads with customers for ratings, Black Mirror-style, it is probably a sign the company is badly run. /London, September 19

© The Financial Times 2019