As many who work in multifamily real estate know well, a Net Promoter Score (NPS) is a popular method of measuring customer satisfaction. But, as we will discuss here, it has significant limitations, from how it was conceived to what it truly measures, all of which should give landlords and managers pause about how it is used to guide property operations and marketing.
A brief primer on NPS: the NPS of an apartment community represents the percentage of renters surveyed who are likely to recommend that community to family or friends by rating it a 9 or 10 on a 10-point scale. Those respondents are the community’s “promoters”. Scores of 7 or 8 are considered “passive” or neutral, and scores of 6 and below are considered to be “detractors”.
NPS is used in various industries, and within multifamily it’s used to measure and manage renter satisfaction, reputation, and can even be tied to on-site employee compensation and bonuses.
The creation of NPS is credited to Frederick Reichheld, with its first public introduction in an article he wrote for the December 2003 issue of the Harvard Business Review (HBR). NPS gained particular popularity within the multifamily industry around the mid-2010s, as customer service best-practices from other sectors began crossing over into real estate management.
According to Reichheld’s 2003 HBR article, the spark for NPS came from a meeting of CEOs of major companies during which they discussed their strategies and methods for creating customer loyalty. The CEO of Enterprise Rent-A-Car announced that they had figured out a way to bypass the “complexity” of traditional customer surveys and reduce feedback to two questions, one about a customer’s rental experience and the other about their likelihood to rent from Enterprise again. Simplicity was the point: Enterprise was only interested in tracking, cultivating, and publishing feedback from its most loyal customers, who, in the rental car business, would refer Enterprise to their friends and pay for additional services from Enterprise down the road.
So not only was Enterprise simplifying, perhaps over-simplifying, customer feedback, but they designed a new system that wasn’t meant to address specific negative feedback.
Reichheld took Enterprise’s approach and some other concepts and over a few years developed the idea of NPS, to tap into the power of referrals and loyalty as a pathway for corporate growth. Reichheld contended that NPS replaced “flawed” methodologies for measuring satisfaction including customer retention, which he felt was a proxy for customer loss – the customer segment that was, in this context, not of interest to a company because it was not going to contribute to its growth.
With this backstory, and as it relates to multifamily, we wanted to comment on a few reasons why NPS may not be the best fit for measuring your renters’ satisfaction:
1. Created as a deliberate simplification
As we discussed above, the root point of NPS was its simplicity. In multifamily settings, measuring satisfaction is not as simple as just defining promoters. The living experience is complex and emotional and it can’t be properly measured in one statistic. Moreover, as Christina Stahlkopf writes in her own HBR article from October 2019 titled “Where Net Promoter Score Goes Wrong”, NPS presupposes that individuals can’t be promoters and detractors at the same time. Renting creates a multilayered experience, one that could very well be positive and negative at the same time depending on the issue. With the NPS system, a renter can only be defined with one label at a time. And while this move away from more complex surveying methods may have been vogue in the early 2000s, there doesn’t seem to be much reason to avoid the complexity now, with new platforms and new data processing capabilities that don’t stand in the way of quick action.
2. Focus on promoters instead of detractors
Rather than just creating an echo chamber of loyalty by focusing on the promoters, a landlord or property manager should be focusing intensely on the pain points, in the parlance of NPS the “detractors” or “passives”. The areas of improvement are so critical and focusing instead on positive responses to a single question doesn’t even begin to identify problem areas. To dismiss low ratings is to dismiss a treasure trove of valuable operational feedback. Whereas with Enterprise its highest ratings may have carried more weight in their publicity, multifamily can be anchored by its lowest ratings, and that’s where the attention should be.
Avoiding what Reichheld referred to as “grade inflation” in this context refers to only counting responses of 9 or 10 as promoters. In this way, Reichheld sought to differentiate the true loyalists from those who were a touch above neutral. But this also oversimplifies things. How can a renter who provides a rating of 8 out of 10 not be considered a net promoter, in a practical sense? In almost every other part of our lives, rating something 8 out of 10 would not be considered “passive”. It would be a net positive endorsement, with maybe one or two small caveats. This speaks to the educational process a respondent to an NPS survey must go through to understand the rules, meaning and consequences of their responses – a process that causes confusion and creates issues with data integrity.
4. Misfit for multifamily
The industries that Reichheld looked at and identified as being particularly good test cases for the NPS system were airlines and rental cars. And this makes sense. They are two industries that cultivate repeat business and upcharges. A business traveler could go on dozens of trips a year and rent dozens of rental cars. But what do growth and repeat business mean in a multifamily setting? An apartment renter makes basically one decision per year, and when they move, it’s not very common to seek to move into another community owned/managed by their former landlord/manager. So the metrics NPS focuses on have very different meanings within the multifamily industry.
It is true that you can’t manage what you don’t measure. But inherent in that adage is an assumption that the measurement is done properly. And whereas NPS is a good fit for some industries and goals, it might be a stretch to include multifamily in that category, given NPS’ origins and early applications. Still, it is a very common metric in the multifamily industry and it’s not without value. But beware of incorrectly interpreting results from NPS surveys. Be sure your measurement of renter satisfaction is detailed, holistic and designed to measure what you want to measure, the good and the bad.