Friday, April 22, 2016

Word of Mouth and Customer complaints

Companies need to find out what is most important to customers and what is the best way to get more customers. Today one client told me that one of his regular customer got upset with his employee and said that he will never do business with them. This is not a new story for businesses dealing with hundreds of customers everyday. But if one customer gets upset with your business, is it really going to effect your business? Yes! It will. A problem may not happen very often but still be a problem that will cause customers to defect. Word-of-mouth is one of the primary influences of purchase behavior. Positive word-of-mouth can increase the success of your brand, yet negative word-of-mouth can destroy brand reputation.

Research has repeatedly shown that word-of-mouth information is an important factor in consumers’ purchasing decisions. Dissatisfied customers tell about twice as many people as satisfied customers. Technical Research Assistance Programs (TARP) reported that dissatisfied complainers told a median of 9 to 10 people about their experience versus satisfied complainers who told 4 to 5 people. A General Electric study found that 61 percent said the opinions of friends were useful, whereas only 29 percent said advertising was helpful. A Louis Harris study showed that 72 percent used word of mouth most often, whereas only 33 percent used advertising most often. In a Whirlpool study, 38 percent relied on friends and relatives and only 6 percent on advertising.

In his classic summary of the impact of word of mouth, Arndt reported that mass media dominate in the product awareness stage, but informal sources—that is, word of mouth—are of major importance in the product evaluation stage. He also found that negative word of mouth had a stronger effect on purchasing decisions than did positive word of mouth. Customers are more likely to use word-of-mouth information for riskier products, higher-priced products, and a costly problem resolution. Average consumers receive a minimum of 200 marketing communications a day or 1400 per week. They act on only about one of the 1400. In contrast, consumers act on approximately one out of three word of mouth messages.

The Internet has given unhappy customers a way to spread their word-of-mouth gripes even further. There are numerous websites where customers can complain about their latest awful experience. Intel, Nike, Mrs. Fields Cookies, and Hilfiger have all been blasted. Some companies are monitoring these sites to use the complaint feedback to improve. Others are trying to stop the sites by accusing sites of trademark infringement.

It happens a lot that we hate customers when they complain.  Keep in mind: If customers do not complain, companies lose the opportunity to find out why the customers defect. While increasing complaints sounds counter intuitive, that is exactly what companies should do if they want to retain customers.

Most research has found that complaint resolution yields customer loyalty. A classic study conducted by TARP for the U.S. Office of Consumer Affairs found a direct relationship between customers who complain and their intent to repurchase. For products costing $1 to $5, 70 percent would buy again if the company resolved their complaint. For customers whose complaint was resolved on the spot, 95 percent would buy again. Even among those whose complaints were not satisfactorily resolved, 46 percent would buy again. Only 37 percent who did not complain would buy again. For products over $100, 54 percent would buy again if the company resolved their complaint, and 82 percent would buy again if it is resolved quickly. 

There is no getting around customer complaints, regardless of your industry. Although no one likes receiving a complaint, they present you with an opportunity to identify and rectify specific problems with your current systems or product. They can also help you to develop your relationship with your customer by allowing you to demonstrate that you value their trade by taking their concerns seriously and dealing with their complaint.

Remember - it costs at least five times as much to gain a new customer than keep an existing one. Keeping a complaining customer should be the top priority, and at these cost ratios you can afford to be generous in your time and effort.

No comments: