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Financial Impact of Product Reputation on the bottom line

dial I’ve been following a good number of discussions, on blogs and Twitter, about ROI in Social Media. While many of them are debating issues of advertising, public relations and marketing, the most interesting to me are those of Social CRM, or extension of CRM functionality into Social Media.

Within that area, I find the most exciting discussions to be those surrounding Customer Loyalty value, because it is so hard to define and to measure. While some CRM thought leaders, like Esteban Kolsky (@ekolsky) have flat-out declared that Customer Loyalty does not exist, others, like Kevin Stirtz of the AmazingServiceGuy.com attempt to come with methodology to estimate it.

Customer Loyalty Value Calculator does not provide ultimate answer for every business, but it does identify factors and logic that allows to illustrate the impact customer loyalty makes on bottom line.

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“For any business, Top line is vanity, Bottom line is sanity, Cash flow is reality”

Product Reputation is another term which is difficult to define, measure and manage. It is often misunderstood as measure of Customer Satisfaction with a product, and both are certainly related, however the methodologies around measuring them are quite different and that makes measure such as CSI (Customer Satisfaction Index) or NPS (Net Promoter Score) results not as actionable, in my opinion, as Product Reputation scores. However all of these do, arguably, influence financial results, and overall brand value of the associated products.

I define a Brand Reputation as an aggregation of Reputations, Products associated with the Brand, enjoy with their Customers. Deterioration of Product Reputation can eventually erode the value of the Brand. We see Product Reputation as the delta between customer expectations and actual experiences, and this delta can be measured using semantic analysis and opinion mining tools.

Inspired by Kevin, I decided to build a similar simple calculator, which I called Product Reputation Impact calculator.

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While it is a simplistic and rudimentary model, but it is useful for understanding how even small declines in the Product Reputation can result in sizable financial shortfall. The good news is that it also shows that there are opportunities to defend your Product Reputation, if you know what is (are) the cause(s) of the problem. In the above example the Product Functionality Reputation is under pressure and Customer Feedback verbatim analysis may indicate that modification of the marketing messages, that are creating these inflated expectations, can easily be adjusted to bring the Product Reputation into balance.

I would love to receive your feedback about this approach and if you would like to take a closer look at the Calculator, I will happily send you this spreadsheet.

Comments & Thoughts

  1. David Locke says:

    The link between customer satisfaction and customer loyalty is tenuous. But, the link between customer loyalty and profitability is not.

    Where customer loyalty has problems is with the sales force that doesn’t leverage it. If the sales compensation for new business drives the sales force to get new business and throw away the existing customer, then sure customer loyalty doesn’t matter. If the sales force only used outbound sales (hunters) and does not us inbound order takers (farmers), then sure customer loyalty doesn’t matter. Making it matter is a matter of managing your sales force.

    Customer loyalty is valuable because the cost of sale for upgrades is 60-90% less, but the company must make the effort to enforce this. Otherwsie, cusomter loyalty doesn’t matter. When marketing treats existing customers exactly link new customers, as in sending them the exact same marcom, instead of a postcard telling them that a new version has been released, sure customer loyalty doesn’t matter. When the license or subscription payment system isn’t “habit,” then customer loyalty doesn’t mater.

    If all you do is look at measured media, sure, customer loyalty doesn’t matter. But, why do customer evangelists matter? And, if customer evangelism matters, then why wouldn’t customer sentement? Why do some companies make customer loyalty matter? Yes, customer loyalty matters, if not to you, then to your competitors. Make customer loyalty matter.

  2. Gregory says:

    Many companies experience difficulties in measuring meaningful metrics because it requires connecting the dots to produce something actionable. If you cannot measure customer loyalty in a way that you can directly impact profitability – then it is easier to declare it non-important or non-existent. I would say it is virtually impossible to create a generic methodology for any type of business, it has to be done for specific segments only.

    Your comments, David, are very valid in a context of Enterprise Software business. I am not sure if they are as meaningful for more transactional selling model.

  3. [...] product profitability, but it is just a rudimentary attempt for discussion and anybody who wants a copy can find it here. Share this on FacebookTweet This!Share this on FriendFeedShare this on LinkedinShare this on [...]

  4. MK says:

    Hi,

    Can I please take a closer look at the Calculator, for Product Reputation Impact calculator?

    Regards,
    MK

  5. MK,

    Thank you for your interest. I just emailed the spreadsheet to you and would love your feedback about my approach and any ideas of how it could be improved.

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