Satmetrix has released a study that examines the financial impact of positive and negative word of mouth. The study is the third in a series and highlights the business-to-consumer wireless industry. Satmetrix developed the Net Promoter Economic Framework, which determines total customer value based on buyer and referral behaviors of "Promoters" (those who are highly likely to recommend a company and/or its products) and "Detractors" (those who are unlikely to recommend a company and/or products). 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 tells others about their experience.
Applying this framework to the wireless industry in the study, Net Promoter Economics: The Impact of Word of Mouth, Satmetrix discovered that each Promoter was worth approximately $1,700 and accounted for roughly one-half of a new customer acquired through positive word of mouth. In comparison, each Detractor accounted for the loss of 1.3 new customers through negative word of mouth. The lost business associated with their negative referrals subtracts the entire value of their purchase behavior and then some, creating a net cost of $300. Compared with the value of a Promoter, each Detractor is worth $2,000 less than a Promoter.
The impact of word of mouth is clear when comparing Verizon and Sprint-Nextel. Within the wireless industry, Net Promoter is a strong indicator of referral behavior and Verizon, the loyalty leader, enjoys a high rate of positive word of mouth. What's more, while Verizon loses roughly one potential customer for each Detractor within its customer base, each Sprint-Nextel Detractor costs the company two new customers.
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