April 1, 2009
By Jessica Tsai, Assistant Editor, CRM magazine

On The Scene -- Net Promoter Conference ’09: Can You Hear Me Now?

For more of the April 2009 edition of CRM magazine, please click here.

In the wireless industry, new customers are hard to come by. Unlike some other goods and services sacrificed in a down economy, few consumers are going to give up on wireless completely—but they may be willing to hang up on a particular provider.

The pool of available consumers is limited: According to a report by customer experience management specialist Satmetrix, four-fifths of the United States population already subscribes to wireless service, and 90 percent of all accounts belong to just four players: AT&T, Sprint Nextel, T-Mobile, and Verizon Wireless.

Competition, to say the least, is intense—but strong support from the best customers can improve the odds. That’s where the Net Promoter Score (NPS) comes in—a measure of the difference between a company’s most positive and negative supporters. (See box, “The Resounding Echo of a Hang-Up,” at the end of this article.)

Sprint Nextel can attest to the pain inflicted by the squeaky wheels. In 2008, the company suffered an overall loss of 4.6 million customers, and revealed plans at the end of January to cut 8,000 jobs. Meanwhile, industry leader Verizon Wireless saw a net gain of 5.8 million new retail customers for the year—a difference that seems to parallel the one between its NPS score (25) and Sprint’s (-18).

Given the wireless industry’s primary reliance on a subscription model, Satmetrix explains that frustration is often a result of unforeseen overages, data costs, and the baffling “unexpected or abnormal additional fees” from terms-of-service violations, such as out-of-network dialing. In addition, the average acquisition of a customer costs roughly $300, a whopping 12 times more than what it costs to retain an existing customer.

Historically, says Vince Nowinski, director of methodology at Satmetrix, the wireless industry has been “largely driven by product technology.” He notes that, early on, Sprint differentiated itself from other providers by investing in (and promoting) a faster data network. This may have attracted a certain type of customer, but any benefit was soon overshadowed by the availability of consumer-level service of comparable quality. Sprint, according to Satmetrix, has uniformly underperformed Verizon in its overall product, reliability, ease of doing business, and customer support. “[Sprint] doesn’t have a strong track record for those kinds of services,” he says. “Over time, it creates a kind of tsunami word-of-mouth that gains additional momentum.”

Sprint’s current advertising efforts are suggesting a shift, with focuses on convenient family plans and enhanced customer service through its “Ready Now” program, rather than the tech-centric features it used to promote. Sprint has to attract new customers to offset its losses—and any gains will have to come at the expense of other providers, all of which have been performing relatively well as Sprint flounders. In order to have any hope of regaining profitability, Nowinski says, Sprint will first need to expand its base of what the NPS calls Promoters—the handful of dedicated subscribers still willing to engage.

But engagement is only half the battle. When people invest time and effort to share their opinions, they want to know the time was well spent. Otherwise, Nowinski says, customer flight may even accelerate. (Even the looming introduction of the much-anticipated Palm Pre handheld device, for which Sprint has exclusive carrier rights, may not be enough to stanch the bleeding.)

Whatever means Sprint uses to solicit the feedback—surveys, online discussion boards, Twitter, or anything else—Nowinski says that any potential upside will be a direct reflection of how the company handles those responses. “It’s more about the follow-through than it is about the communication,” he adds.

BOX: The Resounding Echo of A Hang-Up
The increasingly popular Net Promoter Score (NPS) metric segments consumers based on their likelihood to recommend a company to their peers, on a scale from 0 to 10: Detractors (0–6), Passives (7–8), and Promoters (9–10).

“Likelihood to recommend” doesn’t seem to affect “inclination to spend,” though: According to a study by NPS specialist Satmetrix released at the Net Promoter Conference in January, wireless industry Promoters spend an average of $1,145, Passives spend $1,144, and Detractors spend $1,155.

But direct spend isn’t the end of the story. Promoters tend to recommend a product 75 percent of the time, while Detractors express their discontent only a third of the time. Calculations based on referral impact and overall average spend reveal that a Promoter’s referral is worth the equivalent of $639 in revenue. On the other hand, the revenue lost due to a Detractor’s negative review averages out to be roughly $1,459. So even a handful of Detractors can cause massive damage.

The Satmetrix findings relating to the overall wireless industry are reflected by the figures below.

PROMOTERS: 41 percent

PASSIVES: 32 percent

DETRACTORS: 27 percent

Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationcrm.com/subscribe/.