Word-of-Mouth Marketing

Attracting and learning how to serve new customers can cost a substantial amount of money and can be very time consuming. Your loyal customers want to do this work for you at no charge. Loyal customers want to tell the whole world why everyone should buy from you, and they do not want a single penny for their effort.

When your customer tells her family and friends why they should buy from you, she is your advocate. Everyone likes a good deal. A good deal might be a better price, a special selection, or any number of other things. When your advocate tells someone else about you, she demonstrates that she feels good about her own purchase. She believes that you are the best at what you do, and that's why she wants to tell her friends and family about you. As an advocate, she gets to be a hero to her friends and family.

Remember when you had an especially good dinner in a new restaurant or a trouble-free auto repair experience? You couldn't wait to tell your friends about it. The restaurant and auto repair shop had no advertising cost because you were their advocate. This word-of-mouth advertising is the most effective way to attract new customers. Not only is it free, but your advocates have more credibility with their friends and family than you do. Because their recommendation is more credible, it is more valuable than any advertisement you could possibly buy.

Your advocate's recommendation affects the size and quality of business from the referred customer. The new customers that are referred to you will take less time to service, and in many cases, spend more money with you than your advocate spent. These new customers have been coached on your product or service and why it is the best. They will more readily make buying decisions because of this praise and coaching.

Building a Business on Word-of-Mouth Advertising

My friend, Larry Fisher graduated from Indiana University with a degree in marketing. His first job out of college was with Ashland Oil Company. Larry's job was to call on independent gas station owners to encourage them to sell more of Ashland's products.

Larry genuinely liked the people he called on. He developed strong business and personal relationships with these station owners. After a few years, Larry left his employment with Ashland and opened an insurance agency with the idea of providing gas station owners with property and casualty insurance.

While he doesn't turn other business away, Larry specializes in the gas station market. Larry relies on his knowledge of the oil industry and the network of gas station owners he knows. Customers are happy to refer Larry to other gas station owners because they believe he is the best at what he does. These gas station owners are Larry's advocates, and they make his advertising expense nearly nonexistent. He attends the annual gas dealer convention in his area but does not do any other form of advertising; all of his advertising comes from word-of-mouth. When a new gas station is being built, Larry's clients are quick to call him and let him know about the new station. Larry usually knows about new stations or the sale of existing stations long before his competitors. In his 25 years of business, he has lost very few clients and every year his agency has grown steadily. He provides insurance to more than 1,000 independent gas station owners.

At various times over the years, insurance companies Larry represents have decided to stop selling insurance to gas stations because of negative claims experience or perhaps a change in their marketing plans. The first time this happened Larry was quite concerned, but he was able to find another insurance carrier to replace the one leaving the marketplace.

When he told his clients about the new carrier, all of them bought insurance from the new company through Larry's agency: Larry's customers were loyal to him. The insurance carrier was not important to them; they simply wanted to continue to deal with Larry.

Larry is enjoying the benefits of having loyal repeat customers: Larry knows his customers because they are predictable, and he knows how to effectively and efficiently serve them. Larry's customers know him and know how to effectively and efficiently do business with him. This predictability lets Larry schedule with greater ease. Larry's customers do most of his prospecting for him, which saves him time and money. Larry enjoys the benefits and additional profits that come from having a loyal clientele. Larry's net profit is substantially greater than that of a similar sized agencies.

News articles scream, "America's business people need ways to increase profit and improve their image and standing with customers." The dot-com fallout and credibility collapse of many major corporations has consumers retreating. Business people, entrepreneurs, corporate leaders and frontline employees who master the principles that create customer loyalty restore confidence and enjoy greater profit and the esteem of their customers.

The fiscal year 2002 was very difficult for the Ford Motor Company. The company suffered a $5 billion loss. It is difficult at best to understand automobile manufacturers' accounting. Carry forward losses, onetime accounting corrections, and many other factors go into determining paper profit and loss. However, no matter the strategy, Ford and its stockholders would have preferred a $5 billion profit. Over the years, Ford, similar to most other U.S. businesses, has focused on quality, price, market share, and a host of other business initiatives that have come and gone. For the year 2004, Ford has announced style and technology as cornerstones to turning their fortune around.

Toyota Motor Corporation had a terrific fiscal year 2002. The company had a net profit of $5 billion. Toyota's stockholders were thrilled with the company's performance. Toyota has built the company on the premise that all profit comes from loyal customers. It aggressively pursues loyalty. Toyota customers respond with fervent repeat buying. More than 70 percent of Toyota's customers return to buy another Toyota automobile. This is particularly remarkable when you consider that most automakers have only a 30-percent repeat purchase rate. Toyota focuses on its existing customers. Take a look at Toyota's brochures and other sales literature; typically, you will find an older model Toyota somewhere in the brochure. Toyota is saying, "It doesn't matter if the car is old or one of the new models, if you own one of our cars, you are part of the family."

Companies that promote and enjoy customer loyalty are more stable than companies that are forever searching for new markets and customers. A measure of this stability is the relative change in stock value. This change is calculated by using the selling value of a company's stock at the beginning of the year. Movement or change in the price of stock, either up or down, is totaled and divided by the opening price of the stock to calculate the percentage of change.

The Ford Motor Company aggressively pursues the attention of Wall Street investors and had a 94-percent swing in their stock value in fiscal 2002. Toyota Motor Corporation aggressively pursues customer loyalty and experienced a minimal stock value swing of only 36 percent during the same period. This change in stock price is even more astounding considering the huge stock market shifts that took place during this same period. Toyota's premise that all profit comes from loyal customers has provided stability and served their investors well.