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March 12, 2009
Wominomics
You probably know which customers spend the most with you (also known as share of wallet).
But do you know the referral value of your best customers? That is, do you know how much revenue is generated from customers who refer you, and how much revenue is lost from those who recommend against you?
Satmetrix has new figures it compiled for the wireless industry, and it highlights some startling economics of positive and negative word of mouth:
In this chart, a promoter is worth about $1,700 in total value vs. the average customer who's worth about $1,144. A promoter accounts for roughly half of a new customer acquired through good word of mouth.
A detractor is responsible for the loss of 1.3 new customers through bad word of mouth. The lost business negates the value of a customer's business and then some, creating a net cost of $300. Can you afford to lose $300 from every very unhappy customer?
So, not only is positive word of mouth important but so too is neutralizing bad word of mouth. The best way to tackle that is to talk less and listen more. Your customers have the answers.
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Hi Jackie. Thanks for this.
This is a great visual. Do you know of data sources for other industries.
Tom @tomwgibson
Tom,
Satmetrix has same data for a few other industries here:
http://www.satmetrix.com/satmetrix/resources.php?page=4
Great insight with neutralizing negative word of mouth!
Hi guys,
That's fascinating stuff. My company (www.idiro.com) is a World leader in helping mobile phone operators use their call records to understand communities and influence. Our results are, if anything, more striking than those of Satmetrix (and using our service, the influence levels of the whole customer base can be assessed quickly and at a low cost). We also have had experience of customers finding (as you would expect) correlations between Net Promoter Scores and Idiro Influence scores.
We also use the concept of 'Pressure' (the state of being influenced by an influencer) to identify those most likely to follow the lead of the influencer(s) near them.
Moreover, most of our new business comes from word of mouth!
Simon
Sadly, more proof of the power of negative advertising.
Thanks, Jackie, it's nice visualization of how happy customers can provide some help with growth, but unsatisfied customers can absolutely kill a company.
Interesting stuff. Not surprising, really, but it's great to see specific numbers.
This really shows the importance of not only satisfying your customers to the best of your ability, but also qualifying your prospects properly to avoid selling to those who are likely to have a bad experience. Since the detractors' average purchase value is actually above average, I can imagine that they seem very attractive to the typical salesperson. Of course, the real challenge is to identify signs of a detractor-in-the-making.
Really interesting article! I've been doing some reading on Word of Mouth marketing on the KudosWorks website (there is a ton or articles there), but hadn't ever seen it put into actual financial terms. Much like the comparison of the cost of acquiring a new customer vs retaining an existing one.
By the way, I've been using www.kudosworks.com for the past year or two to build my list of customer testimonials, and hopefully get my customers to share their positive experience with their friends. I would be very interested to know if you have any information or comparisons between services like KudosWorks. I don't have an advertising budget, so really rely on word of mouth (and Google of course).
Thanks!
Graham
www.modernoutpost.com
