Tuesday, March 17, 2009

The Price of Word of Mouth

A very interesting study from the Church of the Customer Blog:


Posted: 12 Mar 2009 02:03 PM PDT

You probably know which customers spend the most with you (also known as share of wallet).

But do you know the referral value of your best customers? That is, do you know how much revenue is generated from customers who refer you, and how much revenue is lost from those who recommend against you?

Satmetrix has new figures it compiled for the wireless industry, and it highlights some startling economics of positive and negative word of mouth:

Picture 11
In this chart, a promoter is worth about $1,700 in total value vs. the average customer who's worth about $1,144. A promoter accounts for roughly half of a new customer acquired through good word of mouth.

A detractor is responsible for the loss of 1.3 new customers through bad word of mouth. The lost business negates the value of a customer's business and then some, creating a net cost of $300. Can you afford to lose $300 from every very unhappy customer?

So, not only is positive word of mouth important but so too is neutralizing bad word of mouth. The best way to tackle that is to talk less and listen more. Your customers have the answers.

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