Satmetrix Study Defines Economic Impact of Word of Mouth

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Found on BusinessWire: http://www.businesswire.com/portal/site/home/index.jsp?epi-content=NEWS_VIEW_POPUP_TYPE&newsId=20080326005848&ndmHsc=v2*A1203944400000*B1206577746000*DgroupByDate*J2*L1*N1000837*Zsatmetrix&newsLang=en&beanID=202776713&viewID=news_view_popup
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First in the Series, Highlights Business-to-Consumer Computer Hardware Industry

FOSTER CITY, Calif.–(BUSINESS WIRE)–Satmetrix Systems, the leader in enterprise customer loyalty solutions, released a study today that examines the financial impact of positive and negative customer word-of-mouth (WOM). The study, Net Promoter Economics: The Impact of Word of Mouth is the first in a series and highlights the business-to-consumer (B2C) computer hardware industry.

“Word-of-mouth is one of the most powerful and trusted marketing sources, but measuring and more importantly, understanding its financial impact hasn’t exactly been clear cut,” said Richard Owen, chief executive officer at Satmetrix. “Our study does that by examining customer behaviors and quantifying them in the larger economic picture that links loyalty with growth.”

In the study Satmetrix illustrates how customers impact the bottom line through their buying and referral behaviors using Net Promoter®. Co-developed by Fred Reichheld, Bain & Company Fellow and author of the “The Ultimate Question,” and Satmetrix; Net Promoter enables companies to categorize customers into “Promoters” (those who are highly likely to recommend a company and/or its products), and “Detractors” (those who are unlikely to recommend a company and/or products). The result is a single metric that serves as an indicator of customer loyalty and long-term growth.

Building on Net Promoter, Satmetrix has developed the Net Promoter WOM Economic Framework, which determines total customer value based on buyer and referral economics. 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 shares with others.

“When customer experiences are positive — and loyalty is high — we expect customers to spend more on average and to generate new business via positive word-of-mouth. Conversely, when customer experience is poor and loyalty is low — we expect lower purchasing value (perhaps even defection), as well as the potential loss of new business through negative word-of-mouth,” said Dr. Vince Nowinski, principal methodologist at Satmetrix.

Applying this framework to the computer hardware industry, Nowinski and his team discovered that each Promoter was worth approximately $2,634. Promoters spend $203 more than the industry average of $1,615 and account for roughly one-half of a new customer acquired through positive word-of-mouth. In comparison, each Detractor can cost a business 0.84 percent of a new customer through negative word-of-mouth. The lost business associated with their negative referrals subtracts nearly the entire value of their purchase behavior, leaving a total customer worth for Detractors of just over $100, accounting for $2,500 less than Promoters.

“While Detractors’ spending lags the average customer by only $158, their negative word-of-mouth behavior represents a significant hidden cost and net drain on future revenue,” said Nowinski.

“Businesses are looking for ways to understand the impact of positive and negative word-of-mouth,” said Dr. Laura Brooks, co-creator of Net Promoter and vice president of methodology and consulting at Satmetrix. “The Net Promoter WOM Economic Framework can serve as a proxy — and a predictor — of how the mix of Promoters and Detractors within your customer base is impacting your business.”

About the Survey Methodology
Data used for this study originated from the Satmetrix Net Promoter Benchmark Database – an ongoing, opt-in benchmarking effort that collects primarily U.S.-based data for the B2C and B2B markets, four industries and 14 segments, including the business-to-consumer computer hardware industry. Opt-in respondents self-select the industry and company they wish to rate using a 0-10 point scale. Key metrics include Net Promoter, other industry standard loyalty measures, self-reported spend and referral behaviors, as well as various company performance attributes, such as satisfaction with overall product, value, reputation, ease of doing business, etc. Consisting of almost 285,000 responses collected over a period of seven years, the Net Promoter Benchmark Database is a rich data source that provides industry reporting and analysis within a competitive context.

About Satmetrix
Satmetrix is the leading global provider of on-demand software applications and consulting services to measurably improve customer loyalty and link these results to financial benefits. As the co-developer of Net Promoter®, the company’s solutions enable companies to gather trustworthy data on customer experience, derive actionable insights, integrate this information into the daily work flow of employees and establish an ongoing dialogue within the customer community. The company has deployed more than 700 enterprise solutions in 40 languages. For more information, visit www.satmetrix.com, or call 1-650-227-8300 in the US or +44 (0) 845-371-1040 in the UK and Europe.

Net Promoter and NPS Net Promoter Score are registered trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld.

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