Dear Dr. Jay,
How can my organization create a Key Performance Indicator (KPI) that’s really useful?
-Meeta R., Seattle
Dear Meeta,
A key performance indicator (KPI) is often used to communicate to senior management how well the company is doing, with a single metric. It could be based on a single attribute in the questionnaire, e.g., the top two boxes of intent to continue using the brand. Another popular KPI is the Net Promoter Score (NPS), based on likelihood to recommend, where we take the percentage of customers who are promoters and subtract the percentage who are detractors.
Over the years, likelihood to continue, overall satisfaction, and likelihood to recommend have all been candidates for inclusion in creating a KPI. We find these measures are often highly correlated with each other. This suggests that while any one measure might be a decent KPI, there is a unique piece of each that is not captured by the others. Likelihood to continue and likelihood to recommend both have a behavioral dimension to them, while overall satisfaction is most likely purely attitudinal.
There are a few key things to consider in selecting (or creating) a KPI:
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The number should be easy to explain and compute.
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It must be tied to some key business outcome, such as increased revenue.
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Finally, it should be fairly responsive to future changes.
In the third consideration, a balance of behavioral and attitudinal measures comes into play. If you’re trying to predict future purchases, past purchases are a good measure to use. For example, if my past 10 credit card transactions were with my Visa card, there’s a very good probability that my next transaction will be made with that same card. Even if I have a bad experience on the 11th purchase with my Visa card, the prediction for the 12th purchase would still be Visa. However, if I include some attitudinal component in my KPI, I can change the prediction of the model much faster.
So what is the best attitudinal measure? Most likely, it’s something that measures the emotional bond one feels for the product, something that asks: is this a brand you prefer above all others? When this bond breaks, future behavior is likely to change.
A final word of caution—you don’t need to include everything that moves. As your mentor used to say, keep it simple, stupid (KISS). Or better yet, keep it stupid simple—senior management will get that.
Got a burning research question? You can send your questions to DearDrJay@cmbinfo.com or submit anonymously here.
Dr. Jay Weiner is CMB’s senior methodologist and VP of Advanced Analytics. Jay earned his Ph.D. in Marketing/Research from the University of Texas at Arlington and regularly publishes and presents on topics, including conjoint, choice, and pricing.
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