Dr. Laura Brooks, VP of Methodology and Consulting for Satmetrix, presented on the topic of customer value, highlighting the value of Word-of-Mouth (WOM) advertising and the importance of employee engagement to foster customer loyalty.

With the increasing amount of advertising messages in the marketplace, people often turn to their friends and colleagues for referrals. Dr. Brooks provided research findings that link customer loyalty to positive referrals for multiple industries. Unlocking the full potential value of WOM is yet to be realized in a variety of industries. Quantifying WOM includes studying the actual positive referrals of Promoters and negative referrals of Detractors. For example, Promoters may provide up to 9 positive referrals while Detractors may provide up to 5 negative referrals.

The concept of WOM has an interesting implication for employee engagement and loyalty. Positive word-of-mouth must also be propagated by employees of a given company — a negative message delivered by an employee may have an even greater impact than a Detractor. The challenge for management teams is to foster a culture where employees are driven to focus on customer needs and can take pride in their company's product and customer policies — another reason to consider Fred Reichheld's notion of bad profits.

Click Not authorized to view the specified document 1083 to download the presentation.

Richard Owen, CEO of Satmetrix, decided to *go large* in talking about state of the Net Promoter nation. He's gone out to the Net Promoter community of 6000-7000 today and asked what is working? Successful companies understand that NPS is not the goal, but operational change is the goal. NPS is not a research exercise. No miracle will occur just from measurement. You need an operational approach.

Having sorted out NPS, Richard moved onto the easier topic of the world economy. The story of baking birthday cakes over the years shows how we have added a higher level of service to every purchase... economies are moving to service economies.

Richard referenced 3 drivers of value creation:

• Operational excellence
• Product design
• Customer intimacy

Operational excellence has run its course as shown by the growth of Dell in the 90's and subsequent decline in the 2000's. It has been pretty much nailed by most companies. Product design is important; e.g., Apple. You also need to think of customer service innovation. Customer intimacy is central to NPS. Senior execs realize that customer intimacy is one of the last remaining drivers of growth that can differentiate them in the marketplace. Future growth will be tied to customer intimacy. How will companies react to pending financial crisis? If you have operationalized NPS, there should be great opportunities as a driver of growth in tough times.

Richard then moved onto accounting practices: NPS is not a standard, unlike GAAP. Today's accounting does not reflect customer lifetime value, so we don't have the full picture. Four out of five CEOs said they were willing to destroy value to make the quarter. A lot of money is flowing into private equity. Why? Regulation burden perhaps, but maybe it enables companies to restructure, build customer value, and do the right thing for the long-term. Pressure on EPS forces cost reductions, but what happens to customer loyalty?

The rotation of CEOs who inherit the situation shows how it can take 4 cycles to recover. Given the average tenure of CEOs is 2-3 yrs, it doesn't inspire long-term vision! If we add a new metric -- customer -- to the equation, we will get a more balanced and complete view. Strong financials and strong NPS give the full picture. The ultimate solution to angry customers is to be in touch and react in a positive manner and harness these people to be your promoters.

Richard had some thoughts on marketing: DVRs will be in 50% of all households in the near future...so where is advertising going? Word of mouth (WOM) is going to become increasingly relevant. 93% consumers lack belief in ads. 78% trust their friend's recommendation when making a purchase. What is the impact of blogs? P&G in league with the devil? Oh my. Customers' frustrations are now being played out on the internet for the entire world. Facebook's valuation and membership show how these media are the new face of marketing. Apple pricing, JetBlue runway story, and Mattel lead paint are some examples of the dramas played out on the internet.

Frontline employees are key: Have you driven the right culture and behavior to drive the right WOM? Walmart experiences show how you can't fake it! This is not something you can farm out to an agency. It must be genuine.

Richard had some thoughts on Zoos: Zoos were formed to help people see animals in their *native* habitat, especially if they can't afford to trek to Africa. People are creating customer zoos, aka focus groups. But with today's technology, you can get access to lots and lots of customers without putting them in artificial environments. You can go to Africa! Start to think about building a relationship with customers that transcends a focus group and build an ongoing dialog, not a piecemeal conversation.

The net of Richard's talk: if you think of NPS as research, you miss the power - it is an operational tool to drive change. The shift to a service economy supports NPS, but you need to have the rigor and link to growth. Pushing against this is the focus on short-term growth. WOM is the biggest driver of brand today. Build large-scale connections with your customer base.