My favorite class in business school, Service Management, closely probed the relationship between customer satisfaction and company profitability.
One highly memorable exercise in the class involved each student writing two letters to a company, a compliment and a complaint, articulating a brand or service experience. We then aggregated, discussed, and critique the results. Did the companies respond? If so, how? Did some companies respond better than others? Did the response make us want to tell others? The exercise not only taught us a great deal about service excellence and the important nuances of service recovery, but the unmistakable power of word of mouth.
Six years later, following a tour of duty at Procter & Gamble, I launched a Web feedback portal that essentially put that letter-writing exercise on steroids. For good measure, I recruited the professor of that class, Harvard Business School professor James Heskett, to serve on our board of directors.
In the course of collecting and analyzing over a million letters and comments, I learned companies that received the highest percentage of love letters trend favorably in the marketplace. In contrast, the companies and brands that served as magnets for negative feedback not only suffered from high rates of negative word of mouth but also were disproportionately vulnerable to regulatory oversight or hostile media scrutiny.
What also jumped from the data is the most intense viral complaints typically emanated from incidents in which companies sought to claim (vs. create) value from their customers. Billing practices in the wireless and telecommunications industries, for example, triggered astonishing levels of consumer hostility and virality. Consumers always felt companies were sneaking in extra "bogus" fees or hiding behind "fine print." Shoppers became viral terrorists over impenetrably bureaucratic rebate programs; rental car shoppers would revolt over fuel refill charges.
Enter Fred Reichheld's Ultimate Question
Fred Reichheld, Bain consultant and author of an engaging, provocative new book entitled "The Ultimate Question: Driving Good Profits for True Growth," calls these "bad profits."
And, boy, is he right!
Reichheld elaborated on these themes in a keynote speech at last week's Word of Mouth Marketing Association (WOMMA) conference. He provided an overview of his branded Net Promoter Score (NPS) framework and echoed many of the themes in his well-read (dare I say "viral") "Harvard Business Review" article, "The One Number You Need to Grow."
"Bad profits," Reichheld argues, "choke off a company's best opportunities for growth, the kind of growth that is both profitable and sustainable. They blacken its reputation. The pursuit of bad profits alienates customers and demoralizes employees." They can also, he adds, "make a business vulnerable to competitors."
Bad profits also create so-called "detractors," says Reichheld, which can essentially lead to untenable churn rates and "strangle a company's growth."
Of course, you don't need Reichheld to spot the evidence. When an airline charges consumers $100 to change a ticket, expect a trail of negativity on PlanetFeedback, epinions, Yahoo Groups, just about every travel forum out there or, God forbid, Jeff Jarvis' blog. Though the fee may technically deliver new revenue (and spike results in short term), it ultimately leads to hostile levels of negative buzz.
And the Ultimate Question?
For companies to grow, Reichheld argues, they must know the difference between good and bad profits. Second, they need to better capitalize on the goodwill of good profits, centering attention on "net promoters," who have the potential to serve as de facto marketers for the company.
Here the power of word of mouth takes on special, if not critical, importance, and this was the central theme of last week's WOMMA conference. "Just as detractors have a bullhorn for spreading negative word of mouth, promoters have one for spreading their positive word of mouth," said Reichheld. "Promoters bring in new people. They talk up a company and burnish its reputation. They extend the company's sales force at no cost."
This, of course, leads to Reichheld's ultimate question, which most brands ignore: "How likely is it that you would recommend this company to a friend or colleague?" The answer can lead to an accountability framework and scorecard for companies to measure progress and results. Seventy percent of eBay customers, for example, are "promoters," a score well reflected in the company's financial performance.
Interestingly, we asked the same question on PlanetFeedback as far back as 1999. Many of the same companies that consistently received high referral scores -- Chick-fil-A, Costco, Southwest Airlines -- also received high-net promoter scores on Reichheld's list.
Advice for Marketers
Whether you use Reichheld's framework or your own, there's no question brands dedicated to sustainable long-term growth and profitability must understand whether their consumers are marketing for or against them. After all, every research scorecard is telling us that consumers trust other consumers more than advertisers. Ergo, referral value is a huge factor behind brand success.
Easier said than done. Corporate research habits are tough to shake. Nevertheless, there are a handful of techniques brands can apply to better understand referral value, and a few are right under their noses:
Reichheld's got it right. Without incentive, enticement, or reward, I give his book my highest recommendation and endorsement. We're at a critical inflection point in marketing, in which the fastest-growing media are those consumers shape and share among themselves. It's TiVo-resistant, and it emanates from real consumer experience and opinion, not marketer activity or stimulation.
Do you know the answer to the ultimate question?
Meet Your Favorite ClickZ Contributors
Many of ClickZ's leading expert contributors will be at ClickZ Live, the new online and digital marketing event kicking off in New York (March 31-April 3). Hear from the likes of: Jeremy Hull, Lisa Raehsler, Andrew Goodman, Bryan Eisenberg, Mathew Sweezey, Aaron Kahlow, Stephanie Miller, Simms Jenkins, Jeanne S. Jennings, Dave Hendricks and more!
Pete Blackshaw, whose professional background encompasses public policy, interactive marketing, and brand management, is executive vice president of strategic services for Nielsen Online, a combination of Nielsen BuzzMetrics, a firm Pete helped cofound, and Nielsen//NetRatings. One of Pete's key focuses is helping brands interpret, manage, and act on consumer-generated media (CGM). A former interactive marketing leader at P&G and founder of consumer feedback portal PlanetFeedback.com, Pete cofounded the Word of Mouth Marketing Association (WOMMA). He authors several blogs, including ConsumerGeneratedMedia.com, and is the author of an upcoming book from Random House, "Satisfied Customers Tell Three Friends, Angry Customers Tell 3000: Running a Business in Today's Consumer-Driven World."
March 19, 2014