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Michael Antman's recent article, "Six Reasons Word-of-Mouth Doesn't Work," struck a chord. He raises reasonable points about the limitations of WOM; after all, it can't completely replace other forms of marketing communications.

However, we would be remiss to ignore the impact of WOM. A recent CMO Council study, titled "Customer Affinity, a new measure of marketing," found that 46% of IT decision makers (B2B) find peer recommendations to be the most important source of information and advice in shaping purchasing decisions.

We would argue that WOM is not a marketing campaign. The first step to generating WOM is delivering a superior customer experience to create customer advocates that deliver organic word-of-mouth. Then, identifying the influential Promoters and targeting your communication allows you to amplify their message.

More and more companies are finding that engaging customers in an online community or "Inner Circle" is a powerful marketing program to support this approach to WOM.

Management experts Treacy and Wiersema have outlined three core business strategies for success: operational excellence, product differentiation, and customer intimacy. Companies are increasingly focusing on customer intimacy. Word-of-mouth isn't about creating collateral or instilling consumers with talking points; it's about focusing on customer intimacy and implementing customer programs designed to foster customer loyalty and drive positive word-of-mouth. By creating loyal—not just satisfied—customers, companies can activate positive WOM.

So, what do companies need to know in order to create effective word-of-mouth? Consider these points:

1. Word-of mouth may not be controllable, but it is manageable

While companies can't directly control what is being said, they can manage their relationship with their customers to improve how they feel about the company or brand. The root of WOM is the customer experience; therefore, it is most effective when a part of a customer-centric culture focused on building customer loyalty.

A popular measurement of potential WOM is Net Promoter, the premise of which is a simple question asked of customers: "Would you recommend my company, product or service?" Those who would recommend are Promoters, and those who wouldn't are Detractors. Companies that improve their Net Promoter Score—percent of Promoters minus percent of Detractors—improve their positive word-of-mouth.

Word-of-mouth marketing isn't about giving customers talking points, as if they were brand spokespeople. It's about delivering an exceptional customer experience that makes customers want to recommend you.

2. Word-of-mouth is not easy to subvert when customers are loyal, not just satisfied

Loyalty is more than satisfaction. It stems from ordinary services delivered exceptionally well or exceptional services delivered well. Satisfied customers are content, but do not have the same level of advocacy that creates positive WOM. While satisfied customers may have no complaints about a brand, they aren't devoted to that brand above all competitors. In this sense, satisfied customers who are not loyal will not deliver the desired results.

3. Social media gives word-of-mouth nearly limitless reach

If word-of-mouth was limited to face-to-face communication, it would have limited reach. However, online communities and social media extend the reach of WOM.

A recent study from the Society for New Communications Research illuminates the reach of word-of-mouth through online media. According to the study:

  • 59.1% of respondents use social media to "vent" about a customer care experience.
  • 72.2% of respondents research companies' customer care online prior to purchasing at least sometimes.
  • 84% of respondents consider the quality of customer care at least sometimes in their decision to do business with a company.
  • 74% choose companies/brands based on others' customer care experiences shared online.

Word-of-mouth is in full force online. Prospective customers often use recommendations found online when choosing companies and products. With the prevalence of social networking sites and online communities, people have unlimited access to recommendations about companies and brands.

Think of it this way: businesses thrive on referrals, and online media allows referrals to spread from across the block to across the world.

4. Identifying Promoters can help spread word-of-mouth

Knowing which customers recommend your company or brand is a valuable part of word-of-mouth marketing. Once a company identifies Promoters, it should nurture those key relationships.

Taking this one step further, you should also identify which of your Promoters are most influential and target messages to activate their advocacy.

Through online communities, companies can create Promoters, identify the influential Promoters, and motivate them to spread WOM. Companies can have personalized engagement with thousands of their customers through two-way dialog.

Ultimately, this individualized interaction helps develop brand ambassadors that generate strong WOM.

5. Word-of-mouth impacts a business's bottom line

Word-of-mouth can't be ignored, because it impacts a company's growth. The Net Promoter WOM Economic Framework was developed to determine total customer value based on buyer and referral economics. Buyer economics refers to how much a customer spends over a given period of time, while referral economics refers to the amount of new business that is gained or lost as a function of what the customer shares with others.

Applying this framework to the computer hardware industry, each Promoter is worth approximately $2,634. Promoters spend $203 more than the industry average of $1,615 and account for roughly one-half of a new customer acquired through positive word-of-mouth.

In comparison, each Detractor can cost a business nearly one new customer through negative word-of-mouth. The lost business associated with their negative referrals subtracts nearly the entire value of their purchase behavior, leaving a total customer worth for Detractors of just over $100, accounting for $2,500 less than Promoters. Based on this framework, it's clear that WOM has a strong effect on the financial performance of your business.

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Ultimately, both B2B and B2C companies can activate positive WOM surrounding their brand by creating loyal customers. It's important to remember that WOM isn't meant to replace advertising, public relations, and other marketing efforts—instead, it's one integral element of an effective marketing strategy.

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ABOUT THE AUTHOR

Deborah Eastman is CMO of Satmetrix (www.satmetrix.com), a provider of technology and consulting services and co-developer of Net Promoter. Contact her via deb.eastman@satmetrix.com.