How valuable is the word of mouth?
. —- By Kumar, Peterson and Leone —-
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The article “How valuable is the word of mouth?”, by Kumar, Peterson and Leone, talks about identifying the customers who bring in the most referrals., and then capitalize on that knowledge. It highlights the following points: -
. .1. What your customers feel about you and what they are prepared to tell others about you can influence your revenues and profits just as much as, or even more than, what your customers do themselves.
2. To estimate the value of a customer’s referrals, take the value of the business brought in by the customers she refers and subtract the marketing costs that prompted her to make the referral. You base your estimates of future referral behavior on past behavior.
3. Once you segment customers according to their referral value and the value of their purchases, you can see how those values relate. Often, it turns out that the customers who buy the most from you are not your best marketers. What’s more, your best marketers may be worth far more to your company than your most avid consumers.
4. Understanding how much value a customer brings in from purchases and how much from referrals can help companies target their marketing campaigns appropriately, enabling them to achieve superior marketing ROIs and reap the full value of all their customers.
. .Based on the research conducted, following were the four categories of customers that were formed called as the customer value matrix. This was based on the calculation of their CLV (Customer Lifetime Value) and CRVs (Customer Referral value)
. .- Affluent – The customers with high CLVs but low referral values.
- Champions – Customers with high CLVs and equally high referral values
- Advocates – Customers with low lifetime values and high referral values
- Misers – who scored low on both accounts
Implications to the marketer –
. .Now the job of the marketer with respective to the current findings is now to:
. .- Make the affluent become champions by encouraging then to refer more new customers while maintaining their highly valuable purchasing behavior. Give them incentives so that they refer more customers.
- Turn the advocates into champions by increasing their lifetime value without compromising their high referral value. Give them personal attention and send them personalized direct mails. Provide bundling of products for them to get attracted and purchase. Try to increase value specifically for them.
- For misers try to offer incentives that will make them buy as well as refer. Do price/product bundling and send them personal mails.
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Tags: Advocate, Affluent, Champion, CLV, CRM, CRV, Customer Lifetime Value, Customer Referral Value, Miser, recommendations, referrals, word of mouth