What Is a Promoter in Economics?
The good news for companies who want to measure customer loyalty is that they do not need extensive surveys, analyzed with complex statistical methods. According to Frederick F. Reichheld's research on customer satisfaction, the most important question for companies to ask their customers is whether they would recommend the company's products and services to their friends. Customers who indicate they are likely to do so are known as "promoters."
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Identification
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Customer satisfaction research in business and economics defines a promoter as a satisfied customer who is willing to recommend a company's products and services to friends, family members and colleagues. Reichheld, a director emeritus of the consulting firm Bain and Company, discussed promoters in a 2003 article in the "Harvard Business Review." The opposite of promoters are detractors, defined as dissatisfied customers who complain about a company and switch to one of its competitors.
Problem
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Many companies set ambitious targets for growth but fail to achieve them because of what Reichheld calls an "addiction to bad profits." Companies often boost short-term profits but undermine growth by creating too many detractors and not enough promoters, according to Reichheld in an article on the Net Promoter website.
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Features
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Reichheld proposed that companies can measure customer satisfaction by asking a single question and calculating a metric known as a "net promoter score." Companies should ask customers to indicate on a scale of 0 to 10, how likely they are to recommend the company and its products or services to others, with a score of 9 or 10 indicating "very likely." Customers who answer with a 9 or 10 are promoters, while customers who respond with a 7 or 8 are passively satisfied. Customers with scores from 0 to 6 are detractors.
Significance
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The willingness of promoters to recommend a company to friends and others is a powerful indicator of customer satisfaction and profit growth, according to Reichheld, because customers who recommend a company's products to others are putting their own reputations on the line. Only loyal customers will take such a risk, Reichheld concluded.
Effects
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The Labor Relations Institute applied Reichheld's ideas about promoters and detractors to companies' workers. Promoter employees bring a positive image to their employers through their words and behaviors. Promoter employees have lower turnover and exhibit greater pride in their work. Detractors, meanwhile, often harm the company's image in the community and are more likely to quit their jobs. They also consume an excessive amount of management time.
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