by: Mark Rogers
A year ago when our new company Market Sentinel started distributing live reports on brands drawn from monitoring message boards and blogs, one of our early pitches was to a research head of a large mobile carrier who was sceptical as to the value of it.
“Who are these people?” he asked, reviewing a page of sometimes negative remarks on a new mobile handset. “Isn't this just chit-chat?”
We realised then that we would need to produce a metric which showed in a way as objective as possible how positive and negative commentary played online. We lighted on the work of Bain and company, Fred Reichheld. Reichheld, in a series of books like The Loyalty Effect (1996) and “Loyalty Rules” (2001) has demonstrated that there is a simple way of measuring the public attitude to a company. You simply ask a consumer:
“Would you recommend this product or service to a friend?”
If the answer is yes, the person is a “promoter,” if no, the person is a detractor. You deduct the first number from the second to reach something known as “the net promoters index.”
The index really comes into its own when you compare two or more companies in the same sector. The higher the positive number applied to a company, the more likely the company is to grow (more recommendations=more customers). The lower the number, the more likely the company is to shrink (more detractors=fewer repeat purchases).
Recommendations matter. In Emanuel Rosen’s book, the Anatomy of Buzz he points out that
65% of Palm customers heard about the device from another person.
Friends and relatives are the number one source for information about places to visit or about flights, hotels or rental cars.
Of people surveyed by the Travel Industry Association:
43% cited friends and family as a source for information.
57% of customers of one car dealership in California learned about the dealership from another person.
“This is not unusual,” says Jim Callahan of the research company Dohring.
[Source: James Torio’s “Blogging a Global Conversation” ]
The recommendations we would formerly seek from friends and family we increasingly find through Google. Research shows that 75% of shoppers use search engines with the intention of purchasing products and services. What they find when they get there is increasingly determined by bloggers and contributors to online forums. Recent research by Market Sentinel in the UK showed that, of Nielsen's Top 50 grocery brands, 40% had negative commentary in the top ten results on Google UK. Searchers will even put keywords into searches to look for issues. For example, in the last 30 days, one of the popular searches tracked by UK-based paid search vendor has been “Ford Focus problems”. This is a search designed to flush out online resources dealing with customer service issues.
Why does this “net promoters” index matter? Why is it important to keep the number of detractors down, and the number of promoters high? According to Reichheld's exhaustive studies, it is very accurate leading indicator of stock price. A high value means that your stock will rise, and a low value spells trouble.
I was reminded of this recently in the context of some work Market Sentinel and its partners are doing looking at the issues a famous corporation has been experiencing with its customer services function. The corporation, faced with a highly competitive marketplace, took the decision to offshore much of its customer services function to India. It cut down on expensive home visits which were an important constituent of its value add. Wall Street applauded and the stock price rose. However the number of negative comments about the company in message boards and blogs rose steeply. Customers did not appreciate the long waits for customer service. They did not appreciate the failure of the company to fulfil on its after sales promises.
Finally, earlier this summer, the company was targeted by a famous blogger who had bought one of its products and was frustrated not just by the poor quality of the product, but by the company's failure to fulfil its customer service promise. The blogger started writing about it and was immediately deluged with comments and trackbacks by aggrieved fellow customers.
A couple of weeks back the company published its latest numbers. Growth has stalled (more detractors=fewer repeat purchases). The stock price fell like a stone. As Mr. Reichheld puts it in a paper published by the Harvard Business Review, the “net promoters” index is ”The One Number You Need to Grow”.
Market Sentinel's benchmarking service provides an index of “net promoters online” and tracks it live. It is now our most popular service. Tracking corporate reputation online is the business equivalent of the Nielsen rating. And it is something managers and corporate investors simply have to do if they want to look at whether a company is on the way up, or the way down.
Original Post: http://www.marketsentinel.com/blog/2005/10/net-promoters