Laura Brooks from Satmetrix discussed the importance of building trusted relationships with customers and employees and how that results in the economics of word of mouth. She started with recent research in high tech, financial services and telecommunication industries that showed trusted relationships had a stronger correlation to recommend scores then product or service performance. This was true of vendors with both one-off point solutions as well as broader solutions. Product innovation is not sufficient, buyers want a trusted partnership.

Critical to building trusted partnerships with customers is having trusted partnerships with employees.  She referenced other conference speakers that shared the importance of engaging employees in improving NPS scores. More mature Net Promoter programs go beyond engaging employees to evaluating the Employee Net Promoter Score (EPS). Without loyal employees you cannot create loyal customers and achieve results. Employees want to be valued and know their values are in alignment with the organization. Drivers of employee loyalty include being consulted, collecting their feedback, and rewarding for results.

Employee Promoters are more likely to be customer facing. People feel they are valued in these roles and they feel their contribution is important in the context of the company's strategic direction. The Allianz presentation yesterday discussed how they connect the front office to the back office. Laura suggested that getting both the front office and back office people following up with customers helps the back office employees better connect to the customer.

Now that we have discussed trusted relationships with both customers and employees, let's connect that to word of mouth. Most of us know that the old advertising model of broadcast communication is broken: 76% of people don't trust advertising. Today's marketing is about word of mouth. According to Forrester Research, 80% trust word of mouth more than any other source.

Word of mouth is no longer constrained to the water cooler. Research shows that word of mouth is on the rise. The Net Promoter research data shows referrals increased 8% over the last year across all industries and in some industries as much as 18%. This is largely driven by consumer generated media and online social networking.  It is estimated that the top dozen social networking sites have over 30 million users. In this connected world, people desire dialogue with brands and with each other.

Next, Laura introduced the concept of NetWorked Promoters, those that are more connected and tend to have a bigger impact on word of mouth. NetWorked promoters are a special subset of your promoters.  They refer more, are more socially connected and credible and tend to be more charismatic.  When studying online communities she found that 80% of the ideas voted as most popular in the community typically come from this group.  Focusing efforts on the few NetWorked Promoters can extend reach and influence over a large number of people.

Let's now look at the economics of word of mouth. Customer value is made up of both referral economics and buyer economics. Net Promoter measures both loyalty and total customer worth that lead to organic growth.

Laura shared research from 2007 for the B2C computer hardware industry and mentioned two other studies coming out, one on the credit card industry and the other on the wireless industry. In this model Satmetrix found that the B2C hardware industry has a NPS of 27%. By contrast, Apple has a NPS of 78%. She then shared how that impacts the bottom line.

• Promoters spend more. The research showed Apple customers spend 1.5 times more than the industry average and promoters spend 1.3 times more. Apple Promoters refer positively on average 90% of the time vs. 75% for the industry average.
• Referrals. The research showed that in the B2C hardware industry, average promoters refer 78% of the time and detractors have negative referrals 29% of the time.  But detractors have 4 times the impact than promoters.

This research has been put into an economic model that would be difficult to describe on this blog.  CLICK HERE to download the white paper, titled Net Promoter Economics: The Impact of Word of Mouth.

The key takeaways from Laura's presentation

• Today's buyers want trustworthy relationships with your organization.
• Strategies for building trust based relationships include Employee Promoter Score (EPS) and NPS
• Word of mouth economics are driven by buying and referral behaviors
• Promoters spend more and refer more
• NetWorked promoters have higher referral rates through connected word of mouth
• The key to Net Promoter economics is TRUST.

Click here to download the presentation.

Satmetrix CEO Richard Owen discussed how companies respond in tough economic times. As we face a potential recession, how much money should companies spend on improving the customer experience?

Public company accounting standards make it difficult to optimize for growth as they reward profits. Short term profits may not be good for long term success. To illustrate this point he describes two examples from the financial services area, the subprime mortgage crisis and credit card introductory rate offers. In both cases, the customer is happy during the initial period when the "special offer" is in effect. However, when the introductory rate expires, customers become disappointed and promoters become detractors impacting the long term sustainable value of acquiring that customer.

Next he discusses what we can learn about how companies react in a recessionary economy. Due to the rules of the public financial markets, large companies tend to turn to cost cutting measures to manage through recession. This is a natural tendency as the market rewards profits. However, small companies that are not tied to the public market tend to increase their focus on the customer instead of cost cutting, often investing in customer acquisition and retention.

Years of research revealed that in a recession economy companies that react by investing in areas such as R&D, Marketing and customer strategies grow and capture market share better than their cost cutting competitors. These winners use profits as a cushion vs. cost as a cushion.

Now let's take a look at three companies that have achieved significant success, but recently experienced declining market value; Dell, Starbucks and Charles Schwab. All have recently seen significant decrease in their stock value and constrained growth. In times of growth, these organizations brought in professional business leaders. As part of their turn around strategy they have brought back the original founders and put the customer back in the driver's seat, returning to the small company mentality. Charles Schwab has a strong focus on Net Promoter. Dell and Starbucks are engaging large groups of customers to provide input on new products and experiences by listening to customers through idea sharing.

Richard goes on to suggest that companies would be wise to take advantage of the wisdom of crowds. While most companies create panels and focus groups to collect feedback and extrapolate the learnings to the larger customer population, he suggested this is like putting customers in the zoo. Zoos were created to allow us to observe animals in their natural setting since we can't all make it to the safari. Similarly, it's difficult to build relationships with focus groups and panels in ways that drives growth. In today's connected world, companies would be wise to engage the wisdom of the crowd and build relationships with a large portion of your market, not just a small sample size. Why visit the zoo when you have the option to go on safari.

The key takeaway points:

• Richard laid out a compelling case that investing in the customer during a recession presents significant opportunity, moving focus from short term profits to long term value.
• He discussed how short term programs to lure customers have significant negative long term impact as illustrated by the recent subprime crisis and credit card "introductory rate" offers.
• He illustrated the differences between big company tendency to cut costs, driven by the public markets, vs. small company focus on long term customer value through the discussion of the founder return to companies such as Dell, Starbucks and Charles Schwab.
• Take advantage of the wisdom of crowds and build relationships with your customers that allow them to guide your strategies in ways that improve loyalty and drive growth.

One final note, Richard stated that economists have predicted 9 out of the last 5 recessions. So much for their crystal ball!  In any case, it's clear listening to many of the speakers this morning that focus on customers pays off, regardless of the larger economic picture.  Read on to learn more about results at LEGO, Orange, Logitech and others.

Click here to download the presentation.