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In December 2003, Harvard Business Review published a critically important article by Fred Reichheld: "The One Number You Need to Grow."

He suggested that a customer's propensity to recommend or tell others about a product or service is the most important measurement in business today. Referral value, he argued, has a much higher correlation to company performance and results than traditionally defined "customer satisfaction."

Reichheld's article triggered an important marketing debate. But it failed to answer the most critical question: If a consumer's propensity to tell others is indeed the "one number you need to grow," what techniques and methodologies can help measure referral value?

Put another way, is it possible to "quantify" word of mouth beyond standard solicited "survey" questions?

CGM

Thanks to the archived nature of the Internet, the answer is clear. Indeed, what makes the Internet so unique and powerful is that it leaves a "digital trail" of word-of-mouth behavior, also called consumer-generated media, or CGM.

CGM is created primarily by consumers who have relevant product experience and who post, share and otherwise circulate their opinions in targeted and high-reach venues: millions of online discussion boards, forums, online communities, rating and reviews sites, direct company feedback and blogs. Their primary goal? Educate each other about products, brands, services, experiences, personalities and issues.

Why is CGM so important? First, it carries an extremely high trust factor. A May 2004 Forrester/Intelliseek study found that consumer–to-consumer recommendations—even online consumer postings to forums—carry a higher trust factor than virtually all other forms of advertising, including TV, radio and print.

CGM content also feeds into search engines, meaning it is easily found by consumers who use the Internet to research products and services. Hundreds of millions of archived consumer comments, some of them rich in specific brand or service experiences, are redefining the notion of the "audit trail" and are raising powerful new standards of accountability and real-time measurements for marketers.

Suppose one million consumers search for your brand every month on Google. And suppose the second result is a hostile comment by a consumer whose horrific experience was made worse by an alienating customer service representative. The bottom line? Your brand will suffer.

Traditional researchers often struggle with this concept on the premise that CGM-creating consumers are not "typical" or "representative." But vocal consumers armed with high-tech megaphones are having an unmistakable impact, especially considering the high levels of consumer-to-consumer trust.

And the sheer volume of CGM—nearly one billion archived comments, and growing at a 30% annual growth rate—makes this form of high-reach and high-impact media impossible to ignore.

Who Wins, Who Loses

Marketers who over-deliver on their brand promise and create great customer experiences tend to reap CGM's dividends, because highly satisfied customers feel the urge to tell others. Brands such as Southwest Airlines, Nordstrom's, Amazon.com and Tom's of Maine typically show high "referral value" via the Internet. Online messages about them are mostly positive, and search results fare likewise.

Conversely, bad experiences typically create a negative "viral" effect. They can prompt consumers to post or archive negative, often hostile, comments on the Internet—especially when advertisers "oversell" or "hype" benefits that don't match reality. Wireless, computer, and electronics companies, which rely heavily on customer service, tend to suffer disproportionately from high levels of negative CGM. What's a stake here is hundreds of millions of dollars in brand erosion.

Consider the stakes in the auto industry. Very few consumers purchase a car without first checking online opinions or comments by other consumers or car owners. Nearly 150 million searches are conducted every year on the term "new car" alone. When CGM gets nestled in the buying cycle, consumers listen.

Brands need to do the following to manage and leverage CGM:

  • Audit the trail: Have potent listening sensors in place to understand what consumers are saying in real time about you, your competitors and your specific brand issues. Solicited surveys alone will not do the trick, and you need to pay as much attention to unsolicited and unaided commentary as to solicited opinions.

  • Profile your user base: Intensely loyal customers exhibit high levels of CGM behavior and leave a post-digital trail of their experiences—a trail not picked up by demographic-heavy profiling. Invite active consumers into the discussion to help gain more control over the "buzz" that's generated about your brand. Ask about their behavior: Do they tell others? How active are they online? What is their potential reach?

  • Map CGM to your marketing events: Map consumer buzz or sentiment to key market events—from new product launches to "new news"—in order to "audit" the performance of your partners, or at least calibrate the performance of a plan. If your PR firm's strategy chief insists that consumers will embrace blue, but everyone on message boards or blogs is screaming red, alas you might want to ask some hard questions.

  • Reclaim the call center: Most marketers treat consumer affairs or the call center as a non-strategic cost operation. But if referral value is what truly counts, every consumer who complains or compliments is a potential source on a message board, a potential blog author or a potential reviewer on Epinions.com, PlanetFeedback.com, or CNET Reviews. Aren't those customers worth paying attention to?

Reichheld is dead-on about the importance of "referral value," but marketers don't need to look far to find tangible, quantifiable evidence of consumers telling others about products and services. The evidence is right under our noses.

In an age when marketers and public relations pros are under increasing pressure to justify their budgets, consumer-generated media, by its trackable and measurable nature, has the potential to provide the needed metrics and measurements for marketers to continue their important jobs of creating, promoting and extending brand identity and loyalty.

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ABOUT THE AUTHOR

Pete Blackshaw is chief marketing and customer satisfaction officer of Cincinnati-based Intelliseek (www.intelliseek.com). Reach him at pblackshaw@intelliseek.com