Part Two: Not much spark from SPARK (www.spark.co.nz) – The cost of negative WOM and the $591,354,000 question
Some would have recalled my post on SPARK called: Not much spark from SPARK (www.spark.co.nz). See it here.
I decided to add a part two because I was thinking about the actual sales effect of negative word of mouth or WOM. It obviously polarizes and amplifies when you have a high profile case like this. So, I decided to do some very dirty numbers based on what I think conservatively would be the effect of gross sales of that 10 minutes not looking after a superloyal customer. I have not adjusted these numbers for the future value of the money, so, please forgive.
Here is my basic scenario:
- Janine is one customer.
- Janine spends on average $150 per month and it is estimated that she will maintain that spending for the next 30 years.
- That = $150 X 12 months X 30 years = $54,000 in total revenue.
- But this is where things get exciting. Janine recalls this service experience at least once per day. Gossiping its contents to 1 person online or offline every day for the next 30 years. That causes 1 person per day for 30 years to not adopt SPARKS services and/or transfer away from them as a service provider. Janine is convincing.
- That is 30 years X 365 days X 1 customer = 10950 lost customers.
- 10950 lost customers who may on average spend $150/month.
- Lets do the maths (and note that it is rough because I don’t take account of the actual time a lost customer is lost – see my note below): 10950 lost customers X $150 per month X 12 months X 30 years = $591,354,000 in potential lost revenue over 30 years plus the $54,000 in total revenue from Janine.
WOW. Did I get that maths right? I hope not. Correct me if i am wrong.
But the point is, it does not really matter what the scenario is. Not looking after superloyal customers has effects. The biggest is negative WOM. When customers recall the negative service experience to their friends, family and colleagues. It has effects. We know that.
I emphasize this point as I am completing a book to be published in the USA on Social Media Branding for Small Business with Business Expert Press. Previous work was done with Inna Piven and we self published on Amazon. I make the point in the book that when you are changing your brand from its traditional market orientations towards a brand that is more community and social media centric. Customers get nervous about those changes. Loyal ones are most concerned because often they will feel that they are going to be forgotten. Often, competitors will also be circling them with great offers because they know they are vulnerable. So, we need to address the following questions:
- Thinking about changes you are going to make to your brand in the future. How will you ensure that traditional front line face to face delivery will be maintained and enhanced?
- What incentives will you provide your loyal customers to continue to be loyal as your brand shifts to being social media centric?
- For your loyal customers, how will your convert them from simply being loyal to becoming active pivotals in the collective communications model.
That is the the $591,354,000 question!
(Note to above which I don’t have the time to account for but it is on my do list. One lost customer in year 29 will obviously not not spend $150 per month X 12 months X 30 years. It will be $150 per month X 12 months X 1 year. So, the actual figure of $591,354,000 will be less but at the same time a significant amount for any company.)