Digital Hive

WOMinomics - or why it makes economic sense to stimulate positive WOM

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.

Other ideas?

In person WOM - more credible by definition?

That Jackie Huba is on FIRE, people. Loving this post about some recent WOM research she uncovered.

Jackie quotes Brad Fay who recently wrote that there's something about in-person communication that boosts its credibility - but she adds that there is a "frame of credibility. Being credible isn't dependent solely upon the medium in which a recommendation occurs. Credibility comes from an established position of trust, whether it's in-person or online, or from a preponderance of independent evidence, such as a collection of reviews on a product site like Amazon."

Wholeheartedly agree, Jackie. If you don't trust someone, the channel of interaction doesn't matter.

I think it's easy for brands to lose sight of this when developing marketing programs - it's easy to think hey if we put an able bodied person out there on the street handing stuff out or talking up our new product people will just eat it up because it's a real person providing a POV. But without the establishment of credibility, it's easy to dismiss it all as noise.

There are also some good comments cueing up the current debate on this topic, as well as interesting data from recent Keller Fay research (hey Ed & Brad, love you guys). Check it out!

Digital WOM is important - just a reminder

A great post from Church of the Customer corroborating what we already know, that online WOM is a big influencer of consumer purchase decisions.

According to a recent Opinion Research Corp study, 61% of respondents check review sites, blogs and other customer feedback forums before buying a new product or service.

Not earth shattering news for those of us in the social media trenches, but Ben O'Connell puts an interesting spin on it: this means 1% of your customers could be influencing 61% of your prospects.

Another reminder that WOM is important and those who ignore it might pay the price.

More wisdom from the WOM gurus at Church of the Customer

Check out the latest post from Ben McConnell of Church of the Customer. Digitasians will remember a visit earlier this year from Ben's compadre Jackie Huba.

Entitled "your marketing budget is too big when," I love this post (and the comments it's provoked) because it debunks many of the "marketing must have's" that distract clients and agencies from their real work: giving consumers help and value.

My favorite: your organization writes more press releases than blog posts.

A close runner up: your CMO's definition of engagement is: "Turning on a prospect to a brand idea enhanced by the surrounding context." (This definition comes courtesy of The Association of National Advertisers (ANA), the American Association of Advertising Agencies (AAAA) and the Advertising Research Foundation (ARF).)

I also love this add from a comment: you decide you need a "community strategy" even though your brand is ignored or loathed by your customers. And: you hire people to improve your online reputation instead of fixing what's wrong with your company.

Why is this important to us? It's a gentle (if pointed) reminder that understanding and tapping into what consumers think and do should always be the marketer's first priority - not pointing the latest marketing technology at them or launching a cool shiny object just because we're bored. Also, don't expect marketing to solve a product or reputation problem. Finally, we must enable "citizen marketers" (as Ben & Jackie have coined them) to get involved with the brand and do some of the marketing for us.