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Apr 1, 2010 12:00 AM
As this column is written, Bernard Madoff is sitting in a federal prison, unaware that his far-reaching Ponzi scheme made a major contribution to graphic arts companies and their salespeople. This mastermind did it all without advertising or promotion. His behavior was testimony to the power of referrals. While we don't suggest you follow Madoff's example to the letter, his “success” provides some interesting insights into the power of referrals.
It's a common reaction to tune out on the subject of testimonials and referrals. There's a belief, usually accurate, that referrals are used by most organizations and their representatives to identify and sell prospective accounts. My contention is that current customers are not systematically asked for referrals even though, on most customer surveys we conduct for print companies, the majority of respondents expresses a willingness to provide help in this area.
Referrals might go back to Gutenberg, but the issue has taken on magnified importance in recent years. It began with “The Loyalty Effect,” a book by Frederick Reichheld. He promulgated the theory of the “Net Promoter Score,” the notion that one question, accompanied by a 1-to-10 scale, could do away with traditional customer surveys. That question involved the willingness of respondents to recommend a supplier to other organizations and buyers.
Reichheld postulated that the responses to this one question provide all the information a company needs to know about the extent to which it is satisfying customers. Many fortune 500 firms have adopted the “Net Promoter Score” and pay employee bonuses based on the feedback.
The “Net Promoter Score” is controversial in management and marketing circles. I believe it's an important question, but one that should be incorporated into a more comprehensive customer survey. Used alone, it can result in misleading feedback in a commoditized industry, such as print. The reason: Less than delighted customers can defect to another supplier easily, resulting in an elevated score even though the survey sponsor might have done little or nothing to elevate the level of customer satisfaction.
Even if steps have been taken to raise the level of customer satisfaction, use of the “Net Promoter Score” question to the exclusion of all other survey questions provides no reliable information that can be incorporated into a continuous improvement program. It doesn't provide information about the reason(s) for the score.
I'm disappointed when no organized steps are taken to take advantage of respondents' expressed willingness to provide referrals, when the identity of those respondents is known.
The current business climate has magnified the importance and credibility of referrals. The reasons: Advertising clutter is a barrage of claims that has increased the credibility and importance of word-of-mouth advertising. Social media has facilitated the referral process.
All of this has resulted in redefinition of the metric, Customer Lifetime Value. Until recently, it has been defined as the net present value of future sales and profits. Today, CLV should be expanded to include the referral value of a particular customer. It goes beyond “Net Promoter Score” in measuring the value of a customer.
Georgia State professor V. Kumar published interesting research in his book, “Managing Customers for Profit.” The research was conducted in the telecommunications and financial services industries and involved a total of 16,600 respondents (see table).
The success rate in following up on customers' willingness to provide referrals might seem low. Perhaps the success rate is lower in the print industry than it is in the telecommunications and financial services industries, but I doubt it. That rate, the result of planned and systematic research and followup, is undoubtedly superior to cold calling, a mass mailing or hours of telephone calls to prospects.
Sources of successful referrals should be thanked profusely and regarded in terms of a new definition of “Customer Lifetime Value.” And don't forget that thank-you note to Bernard Madoff.
Dick Gorelick is president of Gorelick & Associates and the Graphic Arts Sales Foundation. He can be reached at firstname.lastname@example.org.
|Do you intend to recommend this product or company to someone you know?||68%||81%|
|Did you actually refer this product or company?||33%||30%|
|Of those you referred, what percent became customers?||14%||12%|
|Of those new customers, how many were profitable customers?||11%||8%|
Source: V. Kumar
Dick Gorelick's “101 Ways to Increase Profitablity” has been translated into Portuguese. Find the English version at www.americanprinter.com/mag/printing_welcome_ways.