• by Aaron Baar , March 11, 2009

Wireless carriers are not known for their customer service--most marketing messages are about having the cool new phone or cheaper family plans--but perhaps they should pay more attention to it. According to a new study by Satmetrix Inc., word of mouth (WOM) has a significant financial impact.

"A lot of the emphasis in the industry is around technology and customer acquisition; there isn't a lot of energy spent in customer loyalty," Vince Nowinski, Satmetrix's director of methodology, tells Marketing Daily. "But you can't really overcome having a large number of people saying bad things about you."

According to the study, each person who is considered highly likely to recommend a company and its products (a.k.a., a Promoter) is worth about half a new customer in terms of WOM marketing value. A Detractor (i.e., someone unlikely to recommend the company) accounts for a loss of about one-and-a-third customers in terms of new-customer acquisition (including their presumed loss of business), Nowinski says.

"Detractors' negative word-of-mouth behavior represents a significant hidden cost and net drain on the bottom line," Nowinski says.

There are several factors that contribute to a positive WOM, but in the wireless industry the top two factors are the strength of network (i.e., the product) and the ease of doing business, Nowinski says.

Both of those factors have contributed to a significant increase in positive WOM for the entire industry since 2005. In the past few years, all of the companies have increased their network capabilities, and they are starting to move away from less friendly consumer policies, like locking people into long-term contracts every time they make a change to their account, says Deborah Eastman, Satmetrix's CMO. Increased customer service (and eventually loyalty) should lead to some stability in the industry, she says.

"The way that they lock customers in gives a false sense of retention and loyalty," Eastman says. "But by knowing how loyal your customers truly are, you're going to have better visibility into new customer acquisitions. And it will help you understand what may be coming in terms of churn."