Word Of Mouth for Revenue Growth: Less Important Than You Think?
Many companies ask their customers “How likely are you to recommend us to a friend?” However, for most brands, advocacy — positive word of mouth — isn’t the key to revenue growth.
Retention and enrichment matter much more. Retention is when current customers continue to buy your products and services. Enrichment is when current customers increase their spending with you.
What A One-Point Improvement In CX Scores Is Worth: We know that because each year, Forrester creates industry-specific models that show how a 1-point change in Customer Experience Index (CX Index™) score affects customer loyalty and business growth (paywall). We do this analysis for 18 industries. If you want to see the detailed results, check out the new report, “How Customer Experience Drives Business Growth, 2018” (paywall).
Small Impact Of Recommendations On Revenue Growth
Regarding advocacy, our analysis shows that, on average, advocacy only accounts for 2% of predicted business growth in most industries. The two exceptions are credit card providers and over-the-top TV service providers, both of which have a higher share of advocacy revenue. Even in those industries, the absolute impact of advocacy on business growth is small — but so is the business impact of retention and enrichment.
Why aren’t recommendations as important for topline growth as we might think? It’s because it takes a lot for a recommendation to result in a profitable customer. For starters, not everybody who receives a recommendation has a current need for what their friend recommended. What’s more, the recipient of a recommendation might already be a customer of a brand. That’s true for many of the large brands we examined that already have a high market share in their industry. As a consequence, the chance that a recommendation reaches a person who isn’t already a customer is low. Check out this Harvard Business Review article for more interesting insights.
Of course, having more people recommend a brand has benefits. It can reduce the costs associated with customer and employee acquisition. For example, brands that sell directly to customers find that advocacy is a strong driver of customer acquisition.
But if you’re a big brand looking for topline growth, focus instead on keeping existing customers and getting them to spend more.