[section_title title=Word of Mouth marketing Index]
Word of Mouth Marketing (WOMM) also known as buzz marketing and viral advertising has become more and more prevalent and important in a world of increasing connections. As globalization advances, it becomes really difficult to ascertain which factors will help take one’s products to the markets at large. The potential of a global market for one’s products or services looks extremely lucrative to all businesses. Yet, it is really difficult to find out how to create a sustainable brand in a market that has many more imponderables than controllable factors. One method of building a brand is through creating (actually hoping!) customer loyalty. Once your customers are loyal to you, it is likely that they will spread the word about your products and services to others. The receiver of word-of-mouth referrals tends to believe that the communicator is speaking honestly and is unlikely to have an ulterior motive (i.e. they are not receiving an incentive for their referrals). The WOMM has become such a great idea, especially after the now classic book “The Tipping Point” by Malcolm Gladwell that it is foolhardy for any business – big or small – to ignore its power. Just to reiterate the importance of WOMM, there is an association studying and spreading WOMM (reader can refer to womma.org). It is however, not very clear that all customers who buy your product or service may be loyal to you. Further, it is also not known whether they will spread the word about you. To measure the loyalty of your customers, Net Promoter Score (NPS) has been proposed, used and proliferated quite successfully.
Net Promoter Score – A Metric for WOMM
Net Promoter Score (NPS) is a loyalty metric that has been credited with being the “best predictor of growth.” Ever since its introduction, the NPS has been widely embraced and adopted by managers spanning different domains for measuring their firm’s future growth potential. In fact, Frederick Reichheld, its proposer asserts that NPS is “the one number you need to grow.”
NPS is computed based on surveying a statistically valid sample of a firm’s customers with only one question: “How likely is it that you would recommend [brand X or company X] to a friend or colleague?” The respondents are provided a consistent scale for responses ranging from zero [not at all likely] to ten [extremely likely]. Respondents are further classified into three categories based on their responses viz. promoters, detractors and neutral respondents. “Promoters” are respondents who provide a rating of 9-10. Respondents who provide a rating of 6 or lower are classified as “detractors” while the rest of the respondents namely, those who rated the firm as 7-8 are “neutral.” Net Promoter Score (NPS) is then calculated by subtracting the proportion of a firm’s detractors from its proportion of promoters (i.e. Net Promoter = promoters – detractors).
The Attractiveness of Net Promoter Score (NPS) as a Loyalty Metric
As can be seen from the explanation in the previous section, NPS as a metric is very simple and is based on the premise that customer loyalty drives a firm’s growth. Loyal customers are willing to put their reputations on line by recommending a firm’s products and services to their friends and relatives. Recommendation, which is what NPS measures, thus makes a lot of intuitive sense from the loyalty perspective. One of the other reasons why NPS has caught the imagination of managers without exception is that it is a practical metric that is understandable and cost effective to administer. It is feasible to administer the questionnaire on a continuous basis and obtain instant feedback. Since respondents do not have to fill in a big questionnaire, they are more likely to give the firm sincere feedback.
Another advantage is that a firm is able to identify its promoters and detractors. This enables a manager to directly act on this knowledge and address the issues that detractors face. Similarly, the firm can also introduce programs that strengthen the relationship with promoters and thus make them their unpaid “sales persons.” Thus, the NPS provides a path for a firm to grow by creating more promoters for the organization while reducing the number of detractors.
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