The Strategic Marketing Case for Customer Advocacy Measurement

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Whenever senior executives are asked to identify their most important corporate and marketing priorities, at the top of their lists, they invariably include issues (product development or improvement, loyalty programs, communication, brand positioning, customer experience, etc.) involving the provision of optimized value to customers within the competitive marketplace, linked directly with stronger business performance. For brand and customer researchers, the recurring challenge is to provide their organizations with actionable, real-world metrics and diagnostics that link directly with customers’ marketplace behavior. The most contemporary, actionable, research approach for meeting this objective is customer advocacy.

What is Customer Advocacy, and Why Should It Be A Key Organizational Focus?

Advocacy plays an increasingly pivotal role in influencing consumers’ opinions and behavior toward companies. Extensive customer research shows that, today, b2b and b2c customers are quicker to take action, make decisions to buy products and services, and express satisfaction or dissatisfaction with their experiences. With specific regard to the downstream impact of customers expressing themselves, consulting organization McKinsey has found that word-of-mouth is the primary factor behind 20% to 50% of all purchasing decisions; and 50% to 80% of word-of-mouth comes directly as a result of personal experience with a positive or service.



Advocacy occurs when customers select a single supplier from among all those they might consider, giving that supplier the highest spend share and future purchase intent possible, having a strong, favorable impression of the supplier, and telling others about how positive the relationship is and how much value and benefit they derive from it. Advocacy incorporates opinions formed from customers’ transactional and other contact experiences, but it is built on a foundation of strategic, positive purchase and communication behavior. Advocacy results when the customer thinks highly of a supplier, and not only purchases consistently from that supplier over others, but also forms an emotional bond and enhanced levels of involvement, and actively interacts with peers about the personal value and benefit received from the relationship.

How, by the way, is advocacy different from satisfaction or loyalty, which so many companies use as key measures of performance and effective customer management? Satisfaction, because it depends principally on attitudes and recent transactions, isn’t dependable because it doesn’t correlate very well with long-term relationships and key monetary measures like share of spend.

Loyalty, though it recognizes a longer-term relationship and more active purchasing from fewer suppliers, or a single supplier, doesn’t take into account the power and influence of individual, informal offline and online communication. Advocacy considers not only the likelihood to have an exclusive purchasing relationship, but it also incorporates both strong emotional kinship and active, positive, and voluntary communication about the supplier.

For purposes of analysis and action, customers can be divided into advocacy segments according to degree of kinship and engagement with a supplier; and that kinship has direct and explicit monetary translation. This is a key reason why creating advocacy is at the core of effective customer management. Put in bottom line terms: Advocacy represents revenue and profitability, plus a great deal more.

At the very low end of advocacy, our research has shown that there are customers who are Indifferent or openly negative toward a brand or supplier, identifying themselves as being generally disinterested and uninvolved with that supplier, even becoming vocal ‘badvocates’ if they have had unsatisfactory experiences. At the most positive, active advocates not only purchase the supplier’s products or services at the highest level of all customer groups, but they are emotionally aligned with the supplier and its values, are engaged and closely bonded with the supplier in a long-term relationship, and reliably and frequently speak to others about the supplier in a consistently positive and supportive manner.

The Marketing Value of Customer Advocacy

The conjoined topics of stakeholder advocacy and word-of-mouth impact are definitely a ‘future trend’ for companies that is here and now, one key reflection of the shift in decision-making influence to customers. This shift represents profound potential economic and strategic benefits for companies, as well as risk. For instance, through research, a major worldwide consulting organization has determined that advocates can help a company grow at an average rate of 2.5 times their competitors. Conversely, in research with senior management of major companies by global PR firm, Weber Shandwick, nearly 4 in 10 executives fear that a dissatisfied customer or critic will launch an online campaign against their company. Whether positive or negative, advocacy can be very powerful at leveraging decision-making behavior.

Our research has identified several specific advantages which are realized when companies make advocacy the focus and enterprise-wide objective of their customer management processes. By making certain that they are delivering both functional and emotional/relationship benefits at a high level, these companies create a complete value ‘package’ for customers, strong enough that they will often give these suppliers their business on an exclusive basis.



First, customer advocacy is an excellent predictor of use levels with the supplier’s products and services. Usage, recency of usage, and usage frequency all typically increase as the level of engagement progresses from indifference, to commitment, and finally to active advocacy.

Next, advocates are significantly more likely (according to Weber Shandwick, about 3.5 times) to forgive value delivery letdowns and to remain with preferred companies when they are in trouble.

Finally, share of wallet differences can clearly be seen among alternative products in the same competitive set when customer relationship rises from indifference or negativity to active advocacy; and advocates are significantly more likely to pay a premium for brands they support. These are types of financial reward many companies look for from advocacy, and it delivers.

When the effect of active advocacy is compared to such traditional research measures as high satisfaction and high recommendation levels, research proves that customer advocacy is a more accurate and stable barometer of customer management effectiveness. In a study conducted for one of our financial services clients, advocacy was more than twice as reliable and productive when looked at relative to high levels of either satisfaction or likelihood to recommend. And, this advantage for advocacy sustained whether we were looking at recent or frequent brand usage, or share of spend. Similar results, by the way, have been experienced in many other studies, irrespective of industry.

The Future of Customer Advocacy

As a management concept, advocacy has just begun to become mainstream. Over the past few years, advocacy and social media impact studies have been conducted by some of the leading management consulting companies, such as Gartner, Hitachi, Forrester, and IBM. McKinsey, for instance, has recently introduced a word-of-mouth marketing measurement tool.

Noted marketing Professor Philip Kotler, at Northwestern University, believes that stand-out organizations are those which can most effectively optimize stakeholder trust, engagement and perceived personal value. In a recent Financial Times interview article, Dr. Kotler said that some of the most successful companies spend less on marketing than companies that have achieved lower success, building value through inclusion, engagement, authenticity, and stakeholder focus. Though it sounds counterintuitive, Dr. Kotler said, “They use the word-of-mouth effect of unpaid advocates—truly loyal customers—to boost their reputation. Advocates will do your marketing for you if you mobilize them, listen to them and engage them.”



Here is another example of how the power of word-of-mouth and advocacy are increasingly being recognized at senior marketing and corporate levels: Jaime Cohen-Szulc, CMO of Levi Strauss (formerly with Eastman Kodak and S. C. Johnson), keynoted the Ad:Tech San Francisco Conference early in 2010. There were over 11,000 exposition attendees, and 1,500 attended the conference itself (65% C-suite and senior marketing executives). In his presentation, Cohen-Szulc recommended that marketers stop focusing on loyalty, and turn their attention to advocacy. “Loyalty is very passive,” he said. “I may be loyal and buy products from a brand, but I don’t go out and speak about the brand. Advocacy is active.” He also spoke about including customers as a strategic entity and resource, by having them share views and help reinvent brand and corporate perceptions. He concluded, “It is not about selling a product. It is about being coveted and creating a consumer experience. It’s about quality and consumer relevance of the core idea. It’s about a holistic business view.”

It’s not at all an oversimplification to say that advocacy is essential to effective customer management. The reasons boil down to this: when companies have created active advocates among their customers, they have succeeded in capturing the hearts, minds, wallets, and vocal chords of this group. These are customers who, through their personal, voluntary peer-to-peer communication, and marketplace activity, will vigorously leverage more active purchase behavior, both among other customers and non-customers as well. The ultimate goal of every marketer and every company, therefore, should be to make every customer an active advocate while simultaneously reducing or eliminating customer indifference and/or negativity.

2 COMMENTS

  1. Michael,

    Thank you for the article, I enjoyed how you framed the distinction between satisfaction, loyalty and advocacy. I’m in the midst of developing a model to measure the value of customer advocates and am wondering if you have any models that you think provide a good foundation for calculating return on an advocate program.

    I’m trying to combine the concepts of reach of influence as a range in terms of number of people a given level of advocate could reach, the percentage of those reached who would move from consideration to intent to purchase, and onto making a purchase, and ultimately seeking to create a framework to look at how growth of advocates can produce new sales/ new customers such that a brand could understand the potential return from investing in a customer advocate program.

    Also, I’m looking at how to demonstrate that by investing in advocate development, versus other forms of paid marketing/ advertising, a brand can achieve things such as increasing the lifetime value of customers and/ or incrementally increasing average revenue per customer at a lower cost.

    Any rate, I’m curious to know if you have any models you’ve developed that you’d be willing to share or could point me to.

    Thanks,
    Aaron

  2. Aaron –

    Because there is so much variability, company-to-company and industry-to-industry, it would be a challenge to generate even a flexible model of monetizing customer behavior for advocacy. That said, we have frequently been able to isolate and estimate the monetary value of each level of identified customer advocacy by evaluating recorded spend, product/service breadth, and usage frequencies over specific time periods. We have then tracked marketplace activities by the same respondents over time to see how these numbers held up. Result: Spend levels are very consistent and predictable by advocacy level. This has been done in multile b2b and b2c sectors.

    Michael

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