Mega thanks to my buddy and WOM guru Jackie Huba for a super post about the economics of word of mouth. You guys know how much I loves the math!
According to Satmetrix, who 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), in a wireless industry study they did (Net Promoter Economics: The Impact of Word of Mouth), 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.
OK, so, this seems like common sense to me. But what I think is really interesting is to see the economics of WOM quantified. Now, what can we do with this info?
First off, know who you are targeting. Don't acquire detractors. In addition to being bad sources of long term revenue, they'll facilitate losing other customers. If there is any way to excise them from the acquisition process, DO IT. I do not know how to do this, if you have ideas please share.
Second, identify your promoters and encourage and equip them to share good stuff. Enable them to tell their friends they love the product or experience.