A small chain of specialty restaurants has discovered that most of its new customers (65 percent of them) come from word of mouth. The rest are a result of the owner’s advertising campaign.
Question: To get more business, should the owner invest more in advertising to reach customers who have not yet heard of him or invest in promoting more word of mouth?
The best answer is to invest in word of mouth. The math is simple. Let’s say you expect to increase business in each sector by 10 percent. That means that you’ll get 6.5 new customers per 100 if you invest in the WOM sector and only 3.5 new customers if you invest in the hope-for-the-best mass advertising.
Surprisingly, hoping to find new markets, many owners opt for the hope-for-the-best tactic and throw money at the 35 percent. However, mass media advertising is really expensive. These owners invest with the odds stacked against them from the beginning.
On the other hand, reaching an established customer base is relatively cheap and the return potential nearly double the hope-for-the-best. And you can’t beat word of mouth.
How do you stimulate WOM? Let’s think: customer discounts; targeted sponsorships; giveaways; birthday specials; strategic partnerships; it’s endless. It’s called customer retention and it’s almost always cheaper than advertising for new customers.
Posted by Harry Chittenden
