Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
ForeSee says asking consumers two questions provides a more accurate read on their opinions.
Research firm ForeSee today introduced its Word of Mouth Index, rating major consumer brands according to what consumers think of them. ForeSee says its new rating metric will help companies better understand who their detractors are and thus help them better allocate their resources.
The formula for calculating the Word of Mouth Index (WoMI) score starts by asking a question familiar to many metrics-focused retail marketers: “How likely are you to recommend X company to a friend or colleague?” It follows up with another: “How likely are you to discourage others from doing business with this company?” Both ask consumers to rate their answers on a scale of one to 10.
The first question is the basis for the Net Promoter Score metric, which was introduced in 2003 and championed by business consultant Frederick Reichheld in his 2006 book “The Ultimate Question: Driving Good Profits and True Growth.” NPS is maintained by Satmetrix Systems and is now a common key performance indicator for retailers wanting to understand what consumers think of them.
ForeSee has no affiliation with Reichheld or Satmetrix, but it says in studying the metric for two years it found shortcomings. “Primarily, NPS measures only the ‘likelihood to recommend’ because it inaccurately assumes that if people are not recommending a brand, they are detracting from it,” writes ForeSee CEO Larry Freed in introducing the Word of Mouth Index metric. “Companies spend millions of dollars chasing after supposed ‘detractors,’ who are, in some cases, neutral toward a brand or, in many cases, advocates of the brand.”
ForeSee says NPS overstates brand detractors by an average of 299%, based on a study it conducted online with a panel of consumers in April. That study gathered opinions about 100 top brands and calculated an NPS and a WoMI score for each one. In the retail category, Amazon scored a NPS of 53 (determined by subtracting the percent who score the company from one to six on the 10-point scale from the percent that recommend it by rating it a nine or 10), defining 11% of consumers as Amazon detractors. Meanwhile, Amazon scored a WoMI score of 61, defining 3% of consumers as detractors.
The WoMI score is calculated by subtracting what ForeSee calls “true detractors”—the percentage that score a company on the second question with a nine or 10, indicating they will strongly discourage others from doing business with it—from the “true promoters.” ForeSee says true promoters are those that score a company with a nine or 10 on the NPS question about their likelihood to recommend a company.
ForeSee is making the Word of Mouth Index metric methodology freely available. It will include WoMI scores at no additional cost for its clients as part of its available measurement program.
Freed says WoMI provides a more nuanced view of consumer sentiment than NPS. He says it is important to have this view because social networks have significantly increased how far and how fast consumers’ opinions spread about brands. “Business leaders cannot make sound, intelligent and well-informed decisions when their key—and in some cases, only—metric is inaccurate by such a large margin,” Freed says.
A Satmetrix Systems spokesman says he could not comment on the ForeSee report because the information he’s seen about it did not provide the underlying data and that the methodology for measurement was not immediately clear.
Other online and retail brands evaluated in the ForeSee report, their NPS and WoMI scores and percent of detractors, include:
- Apple: WoMI—56; NPS—47; NPS detractors—13%; WoMI detractors—4%
- eBay: WoMI—52; NPS—39; NPS detractors—17%; WoMI detractors—4%
- Gap: WoMI—36; NPS—21; NPS detractors—21%; WoMI detractors—6%
- Nike: WoMI—44; NPS—30; NPS detractors—17%; WoMI detractors—3%