This week Satmetrix released a study that explores the relationship between Net Promoter® and Word of Mouth in the business-to-consumer wireless Industry.
Net Promoter is a discipline that provides a proven approach for measuring and improving customer loyalty. The Net Promoter Score compares the number of “Promoters” (those who are highly likely to recommend a company and/or its products) to the number of “Detractors” (those who are unlikely to recommend a company and/or products) within an organization’s customer universe, resulting in a single metric that serves as an accurate indicator of customer loyalty and long-term growth.
Satmetrix developed the Net Promoter Economic Framework, which determines total customer value based on buyer and referral behaviors of "Promoters" and "Detractors." Buyer economics refers to how much a customer spends over a given period of time, while referral economics refers to the amount of new business that is gained or lost as a function of what the customer tells others about their experience.
Applying this framework to the wireless industry in the study, Satmetrix discovered that each Promoter was worth approximately $1,700 and accounted for roughly one-half of a new customer acquired through positive word of mouth. Conversely, each Detractor accounted for the loss of 1.3 new customers through negative word of mouth. The lost business associated with their negative referrals subtracts the entire value of their purchase behavior and then some, creating a net cost of $300. In other words, each Promoter is worth $2,000 more than a Detractor.
"While reported spend did not differ by Net Promoter category, Detractors' negative word of mouth behavior represents a significant hidden cost and net drain on the bottom line," said Dr. Vince Nowinksi, director of methodology at Satmetrix.
Within the wireless industry, Net Promoter is a strong indicator of referral behavior and the impact of word of mouth is clear when comparing Verizon and Sprint-Nextel. Verizon — the loyalty leader — enjoys a high rate of positive word of mouth. Moreover, while Verizon loses roughly one potential customer for each Detractor within its customer base, each Sprint-Nextel Detractor costs the company two new customers.
"A company's ability to take action to increase Promoters and reduce Detractors has a significant impact on financial performance," said Dr. Laura Brooks, vice president of business consulting and methodology for Satmetrix. "Companies with a business strategy focused on the customer experience enjoy stronger brand affinity, improved retention, and increased growth."
This new report, “Net Promoter Economics: The Impact of Word of Mouth," is available from Satmetrix.
Courtesy – Randy Saunders at Perfect CEM
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