In recent posts, we've paid a visit to the CEO, the CFO, and the CIO to learn how Net Promoter is relevant to the activities under their purview. Today we're engaging the CMO to understand how forces in marketing are driving the adoption of Net Promoter.

Let's start with a candid assessment of the marketing landscape, as traditional advertisers respond to the opportunity and power of word-of-mouth (WOM) marketing.

Why is WOM hot?

Well, the traditional alternatives are looking less formidable by the day. When used as a mechanism for generating demand, advertising as we know it is heading to the dogs. This is not, I'm sad to say, a visionary leap I made myself. I'm not an advertising guru. But I did manage to dig up some facts so I could play one on TV.

In fact, it's TV that's in the crosshairs. According to surveys done by Nielsen, between 1995 and 2005, TV viewing in the U.S. eroded about 2% each year--despite steady population growth during that same period. Meanwhile, since 2005, the penetration of digital video recorders (DVRs) has doubled from 10% to 20% and Forrester Research predicts DVRs will reach half of U.S. households within three years. People love being able to watch their favorite shows on demand, especially when they can skip through the advertising--something that 70% of DVR owners do routinely, according to Nielsen. This is well beyond the 40% threshold at which advertisers say they will dramatically reduce their TV buys. Exacerbating the problem is a growing skepticism in the advertising medium: according to McKinsey, 93% of consumers (hold your breath here) don't trust advertising messages! Advertising already in a crisis? In 2006, according to TNS, General Motors reduced its ad spending by $600 million.

If traditional advertising is in trouble, WOM starts to look relatively attractive. However, internet technology is really pushing the case. When it comes to website referrals, 57% of web users say they are influenced by word of mouth, while 42% say they are influenced by ads. Additionally, 92% of referred customers say they often extend referrals to somebody else.

And then there are the blogs.

Whether or not you give credence to new media phenomena such as blogs and wikis, there is no doubt that your customers are talking about you. Self-authoring on the web has exploded. The herd strives to be heard, and what was formerly private correspondence between companies and consumers, "Dear CEO" letters of frustrated malcontents or enamored brand advocates, is now being played out in the public domain right in front of all your other customers. Suddenly, concocting a strategy for word of mouth seems less like a fringe project and more like a mainstream strategy.

Of course, good word of mouth springs from good customer experiences. When I researched the recommended approach to deal with the new world of public word of mouth in the marketing publications, the advice fell into three broad categories:

--Monitor the blogosphere
--Take care of the "A-listers" -- those bloggers everyone reads
--Use major public embarrassments as marketing opportunities

And what about those bloggers who make a career out of bad-mouthing your firm? Recruit them! Address their issues and turn them into assets. If bloggers and feedback sites are creating bad press, then find some good press, they reason, even if it means creating your own "word of mouth" stories. Oh, but be careful! The integrity of your referral networks is everything. Wal-Mart learned this the hard way when they created "Wal-Marting Across America," a lively account of a Wal-Mart fan visiting stores all across the U.S. Once the world learned that these road-tripping bloggers had close ties to the retail giant, the fall-out for both Wal-Mart and its PR agency was very bad.

While none of these word-of-mouth strategies are, by themselves necessarily damaging, they run the risk of becoming focused on the symptoms rather than the disease. So, I'll suggest the obvious: be alert to the real problems your customers are having, and fix them.

What about the real world?

As marketers, we often get so dazzled by technology that we forget that consumers spend most of their lives offline. In Megatrends, John Naisbitt argued that consumers are more often influenced by direct contact than they are by online interactions. Naisbitt measured word-of-mouth conversations about products, services and brands. He discovered that 90% of these conversations take place offline: 72% via face-to-face interactions, and 18% by phone. E-mail and instant messages each garnered 3% of total WOM, while chat rooms and blogs accounted for 1%. Altogether, Naisbitt reported, only 7% of WOM took place through online channels.

So stop worrying about blogs and start worrying about actual customer experiences. As Jeff Bezos of Amazon.com puts it, "We take funds that might otherwise be used to shout about our service, and put those funds into improving our service. That's the philosophy we've taken from the beginning. If you do build a great experience, customers tell each other about it. Word of mouth is very powerful."

The changes I've outlined create a pretty compelling argument for investment in customer experience and word-of-mouth marketing. However, in the new era of efficient marketing, what gets measured gets managed. The CEO and CFO are no longer amused by John Wanamaker's famous statement: "Half the money I spend on advertising is wasted. The trouble is I don't know which half." But here, we have good news.

Net Promoter links customer loyalty to growth of the corporation. It also acts as an effective tool for measuring both customer experiences and word of mouth using the recommend question. It gives you a toolkit for linking your WOM efforts directly to the growth strategy of the firm, and in a far more rigorous, operational fashion than before.

If you buy the case for word of mouth, if you are convinced that the public visibility to your operations is now inescapable, it's time to put in place a program to manage your customer experience directly -- and measure, through Net Promoter, your progress in the eyes of your customers.

I would like to take a moment to discuss where we've been with the Net Promoter research, and how it fits with the way companies are using and validating Net Promoter Score (NPS) in their businesses. There have been some critics from various corners of the market research world who are doing a poor job explaining what Net Promoter is about, and we recently received a request in the discussion forum to clarify our position -- especially for many of our community members who have not reviewed the original research.

When Satmetrix (the co-developer of Net Promoter) undertook the challenge of finding the right metric (or metrics) to capture customer loyalty, there were already a myriad of measures being used for that purpose. That lack of standardization diluted the business benefits of customer loyalty programs. In many cases, the numbers being reported were either overly complicated, unbelievable, or not auditable. What's worse, many of these metrics had no proven link to real business outcomes. Then and now, I think most practitioners were looking for the same thing: a metric that would help their organizations focus on the customer. Phrases like "customer centricity" and "cultural transformation" come to mind. But let's be realistic: the focus was not on changing the culture just because it seemed like the right thing to do. Business leaders believed that improved customer focus would contribute to their growth and help them differentiate from competitors.

So the focus of our original research with Fred Reichheld was to find metrics that link what customers say to what they actually do. That meant that we needed to find a loyalty question (or questions) that would consistently link intentions with customer referrals and purchase behavior at the individual level.

Today, I'd like to discuss our first round of Net Promoter research, which targeted customers in six industries. We collected their feedback on a variety of loyalty measures. Six to twelve months later we sent follow-up surveys to these same people to study the linkage between their initial loyalty intentions and their actual behavior. For some of the companies that we studied, we also had the actual purchase histories for customers who had responded. This individual-level analysis proved to be robust in linking the recommend question to actual customer behavior, enabling us to group customers according to their joint loyalty and behavior profiles and create the Net Promoter categorization.

Ultimately, business value is created one customer at a time, so starting with a focus on customer behavior at the individual level is critical to understanding your NPS economics. Some practitioners and observers have focused exclusively on establishing links at the aggregate level -- for entire industries or large companies that offer products and services in many discrete markets. Decomposing those "aggregations" is key to understanding how NPS links to business outcomes for you in each market where your company competes. For a good example of this, check out the Philips case study, which was presented at our London Conference in June. It shows the linkage to growth in a variety of different business units within Philips, each of which has unique competitive dynamics.

Some people ask me whether the recommend question was the strongest predictor 100% of the time when we did the research. The plain answer is no. We found this question to be the first or second correlate to individual customer behavior 80% of the time, as mentioned in our whitepapers about the research and in Fred's writings. Should you bother trying to identify promoters and detractors if you find that the recommend question is not the best fit for your business? I would say yes. As an example, read the Enterprise Rent-a-Car case study in The Ultimate Question. It shows how the business processes of the Net Promoter discipline work for identifying and acting on promoters and detractors, and they happen to use a satisfaction ranking to do this.

While analyzing customer behavior at the individual level was critical to establishing the Net Promoter framework, our long-term goal was to understand how those tendencies linked to profitable growth for companies and their competitors. At the time of the individual-level research, Satmetrix had been tracking a variety of industries using the recommend question, along with many other commonly used loyalty questions. We amassed a large data set (over 150,000 responses) by which to expand the research to a macro-level perspective. We found that Net Promoter demonstrably tracks to growth for most businesses, as explained in The Ultimate Question and other publications.

But if that were all Net Promoter did, it is doubtful that it would have gained its current momentum in the marketplace. While Net promoter is an important indicator of individual customer tendencies and profitable growth, the real advantage comes with the insight it reveals about how to manage the company as a whole and how to connect employees to customers. Let me highlight what I believe to be the key components of this approach:

1) Net Promoter is simple but not simplistic. Net Promoter's advantage is that it is easy for everyone to calculate and communicate, from front-line employees to CEOs. Of course, that doesn't mean you can treat Net Promoter Scores simplistically. Some people assume that once they can calculate their NPS, they are well on their way to becoming a loyalty leader. The truth is, you can't correctly calculate your Net Promoter Score until you truly understand your customer base, including who are the right customers to contact, when to contact them, at which touch points, etc.

2) Net Promoter tracks to growth. Let's not underestimate the value of this core attribute. At the same time, let's not overlook individual customer behavior as the key focal point, especially the value gained by understanding the economics of promoters, passives and detractors. Net Promoter encompasses two key characteristics about your customer: the economic value of a given customer today (as reflected by their individual buying power) as well as their future market worth (including re-purchase referrals to others). We've tracked this finding across multiple industries and can quantify its impact. Your company can do the same. Once you identify the right financial and operational data, you can validate the impact of promoters and detractors -- especially their decisions to spend, renew, and refer. In fact, this is the most powerful information to communicate the potential of NPS to your organizations.

3) Net Promoter is actionable. Companies that understand these economics can quickly reach decisions about whether they are really attaining "good profits," as Fred Reichheld calls them. Success does not simply come from measuring NPS; it comes from taking action (both at the front line and at the executive level) to improve the customer experience in a repeatable way. Net Promoter data is granular, distributed and actionable. Action comes from nurturing promoters, engaging detractors and moving passives into positive territory. This is not a once-a-year activity, but an ongoing dialogue between customers and employees. The ensuing action will permeate your business and focus your attention on nurturing profitable customer relationships.

There are many examples on this website of companies that are seeing positive results after applying Net Promoter in their business. Their successes are attracting more businesses to this revolutionary way of measuring and acting on customer loyalty data. Our ongoing research has validated the effectiveness of Net Promoter -- especially when it is implemented as a total customer program. But don't rely on others to prove the point for you. Test it with your own customers, and follow the path that works for your business.