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April 08, 2010
A correlation between recommendability and revenue?
The more that customers recommend your products, the more revenue you should have, right?
While Satmetrix has not done any recent research into correlating recommendability to revenue growth, a very unscientific look at the leaders shows that:
- Auto insurance, banking, and homeowners insurance leader USAA announced that 2009 was its best year ever amidst the worst financial conditions since the Great Depression.
- Airline leader JetBlue saw a 7.4% increase passenger revenue in 4Q09 and a 2009 profit despite the airline industry suffering the worst drop ever in passenger revenue ever last year (-18%).
- Computer hardware leader Apple recorded nearly half of the U.S. PC desktop retail industry revenue in 2009.
- Cell phone service leader Verizon's 2009 revenue was up 10.7% over 2008, while revenue declined for AT&T (-0.8%), Sprint (-9%) and T-Mobile (-1.6%).
Could it be that the customers of these NPS stars are recommending them at higher rates resulting in increased revenues? Seems reasonable enough.
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This makes perfect sense. I wonder however, which has a bigger impact positive customer recommendations or negative. For the cell phone example at least I hear more people recommending that you not use the other providers then I hear people recommending that you do use Verizon. It seems like with their ads Verizon (and Apple) spend more time encouraging negative recommendations about their competition then they do positives about themselves. It would be interesting to see some data on that. Thanks for the thought provoking post.
Seems like a classic conundrum - "which came first?" Clearly, people's perception of a product or service weighs heavily on the decision to buy, but "purchase pride" contributes to a person's propensity to recommend a product. One thing is for certain: these companies are meeting consumer expectations. That is a very good way to stay in business.
I agree with this completely. I think it's more than just recommending to others, however. Something often overlooked are retention rates and how they impact growth. If you don't LOSE customers, it helps your growth numbers. If your customers are happy and raving about your brand, they're also much less likely to leave. Nice post. Thanks!
Oh - and Josh - there is such a thing as a detractor score, too, because what you're talking about has a definite impact as well.
USAA rocks my face off...I'd shout it from the mountaintops!
It's make sense that the better feedback aomeone gets, the more money they make. Word of mouth - it's the past as well as the future!
I think that the personal recommendation will be the key to successful small businesses for years to come. It goes back to Seth Godin's Ideavirus concept, where if you cannot get enough of something, if you cannot sit still thinking about it, you are naturally going to want to tell someone else.
That interpersonal enthusiasm rubs off on the next person, and pretty soon you have a huge word of mouth campaign that creates the next superstar business.
Businesses that understand this and nurture their customers in such a way that they will WANT to pass the message along, will be the ones that make it to the finish line, no matter what the statistics say.
The Underdog Millionaire
This is only testament to the fact that the power no longer belongs to the marketers / ad agencies or corporations, but has shifted into the consumers hands. The future is here and those who are smart are asking their market what products and services and at what price they want, and are then providing it for them. Then, they tell two friends, and they tell two friends... and so on.
I wondered how these companies (well, the publically traded ones anyway) would compare to the DOW, S&P and/or NASDAQ. Looking at one-year returns, the NPS Stars led the pack with a return of 64% as compared to the DOW (37%), S&P (39%) and NASDAQ (49%).
Certainly appears to support your argument, Jackie.
An interesting report was produced by the Lomdon School of Economics which investigated te NPS of several industries in the UK. Full report here: http://www2.lse.ac.uk/intranet/LSEServices/divisionsAndDepartments/ERD/pressAndInformationOffice/PDF/AdvocacyDrivesGrowth_5-9-05.pdf
They found A 7 per cent increase in word of mouth advocacy unlocks 1 per cent additional company growth.
A 2 per cent reduction in negative word of mouth boosts sales growth by 1 per cent.
Mark, you are pulling 2 findings completely out of context. Read the whole story and you will find that NPS is a good indicator of (future) revenue.
The power of referrals yet again... interesting how word of mouth continues driving business success, even in modern times...
Perception can only take a product so far. A product has to bring value to the people that purchase it or in the long run it will fail. Some companies that built a brand name by having quality products/services cut costs by using cheaper materials to increase their profit. They are attempting ride the wave of their brand (reputation) which may make them a lot of money in the short run but can ruin chances at long term profitability. What happens is they lose the trust of their customers by trying to pull a bait and switch. Word of mouth influences perception but eventually things tend to find an equilibrium.
Apple earned more revenue in desktops than either Dell or HP?
Laptops alone is easier to imagine.
Click through to the article I link to above. It has Mac desktops at 48% of the US retail revenue and all Windows desktops revenue share as 52%. This is primarily because the price point of the Mac machines is so much higher.
The table would be more useful if it showed figures for revenue and also rows for other organisations to compare against. I guess I'm just looking at this article on face value though.
I would like to know what a maximum and realistic NPS score is for a bank in the Netherlands. There has been done some research, however that is only in America and between America and the Netherlands there is a lot of cultural differences which can effect the understanding of the NPS score.