Satmetrix Uses Net Promoter(r) Economics to Quantify the Impact of Word of Mouth

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SAN MATEO, CA–(Marketwire – March 11, 2009) – Satmetrix, the Net Promoter company, today released a study that examines the financial impact of positive and negative word of mouth. The study is the third in a series and highlights the business-to-consumer wireless industry.

“In the current economic climate, companies need to focus more than ever on delivering a superior customer experience that retains customers and creates positive word of mouth,” said Richard Owen, chief executive officer of Satmetrix. “This study highlights the impact that customer loyalty and word of mouth can have on a company’s brand and bottom line.”

Satmetrix developed the Net Promoter Economic Framework, which determines total customer value based on buyer and referral behaviors of “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). 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, Net Promoter Economics: The Impact of Word of Mouth, 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. In comparison, 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. Compared with the value of a Promoter, each Detractor is worth $2,000 less than a Promoter.

“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.

The impact of word of mouth is clear when comparing Verizon and Sprint-Nextel. Within the wireless industry, Net Promoter is a strong indicator of referral behavior and Verizon, the loyalty leader, enjoys a high rate of positive word of mouth. What’s more, 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.”

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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