Net promoter score and future consumer behavior in the casino gaming industry

Abstract

The Net Promoter Score (NPS) is a widely used measure of customer loyalty. It was touted as “the one number you need to grow” due to a purported relationship between the NPS and firm growth. A number of academic papers have examined this macro relationship with decidedly mixed results. In this study, we focus on the micro relationship between a customer’s loyalty segment (Promoter, Passive, or Detractor) and purchasing behavior. While other studies focus on the relationship between a customer’s NPS segment and word of mouth (the other driver of firm growth), only a few have examined the impact of the NPS segment on consumer retention and future spending. Unlike prior studies using consumers, we have objective measures of retention, past spending, and future spending. We explore three important research questions: (1) Does past purchase behavior vary differ across the NPS segments? (2) Does future consumer behavior vary across the NPS segments? And (3) How do the NPS segments compare to other metrics in predicting future consumer behavior? Our data comes from post-visit surveys and transaction histories from the casino gaming industry. We find Promoters have significantly higher levels of past spending, retention, and future spending (controlling for past spending) than Detractors. However, using other metrics such as satisfaction or likelihood-to-revisit provides comparable fit to the data. Furthermore, the average difference in future spending between the Promoters and Defectors is small, despite its statistical significance. While this study provides empirical validation of the use of the NPS segments to capture differences in consumer behavior, managers have options with comparable explanatory power to measure the state of their relationships with customers. This study adds to the very limited empirical research that validates the assumptions about consumer behavior that underlie the use of the NPS for predicting firm growth.