word of mouth referrals are not enough
word of mouth referrals are not enough

The number of small business owners who purely rely on word of mouth referrals to acquire new clients is staggering.

Sure, word of mouth referrals are valuable. Market research giant Nielsen found that nearly 85% of consumers trust recommendations from friends, family and colleagues. People who are referred to your business by word of mouth are possibly more interested in what you do and required less selling effort to convert them into an actual customer.

The logic of seeking word of mouth referrals is sound – ‘I do a good job, this person is happy and they will tell their friends about me’. The problem is when business owners are completely dependent on word of mouth referrals and then wonder why they are not growing, or why after five years of hard work they have realised that they aren’t actually making money.

This blog post is a little bit of tough love for the business owner’s out there whose only marketing strategy is ‘sit back and let the word of mouth referrals roll in’.

Do you really do a good enough job?

By nature, small businesses are often under resourced. This means your staff might be not as well trained as you would like and your systems are inefficient with cracks for jobs to fall through.

Because your business is under resourced, we can assume that on average, you do an average job. People are satisfied enough to score you about 5 or 6 out of 10.

A common marketing tool to assess customer loyalty and the likelihood to recommend your business to others is the Net Promoter Score.

The logic of the Net Promoter Score is as follows:
Customers are grouped into three categories –

  • Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
  • Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
  • Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

As shown by the graph, if you do an average job (shown by the normally distributed bell curve), there is an incredibly small fraction of people who will actually refer your business to others. To compensate, many businesses actually offer incentives in an attempt to transform a ‘Passive’ into a ‘Promoter’, this can be expensive and establishes a transactional precedent so over time customers won’t refer you any new business unless they are getting something back from you.

If you do a good job consistently then you will probably have a reliable trickle of new customers referred to your business – probably enough people to offset any lost customers during the same period. So if you do a good job, it is likely you can maintain your business at current levels (no growth) by relying on word of mouth – assuming your competition doesn’t do anything.

Is your brand strong enough?
Most small businesses barely have a consistent brand image, which means no – you cannot compete in your market long term and your business would eventually be smothered by large competitors if you purely rely on word of mouth referrals.

For example, who do you think of when I ask you to name an optometrist?

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I’d be willing to bet money that your choice was Specsavers – catchy slogan, amusing advertising and a constant barrage on your senses across TV, Radio, Online and Outdoor Signage. Specsavers made about AUD $4.3 billion in 2015, and each store averages $2.5 million in sales.

One store of this international behemoth probably makes several times more money than your local optometrist. They dominate the market, and therefore are at the top of your mind.

If someone recommended you their local optometrist, you’ll need a pretty damn good reason to choose them over Specsavers. If you cannot find this local optometrist or find that damn good reason within a couple of minutes – you’ll probably end up going to Specsavers despite the great recommendation!

For a small business to thrive in the long term, you need to think about the fact that large multinational corporations have a noose around your businesses neck. They can easily out market, out spend and out do you every time if they choose. But remember this – right now the noose is loose – you have time to slip out and build a successful business. If you do nothing though, eventually they will strangle you.

If you are facing stiff competition from well resourced competitors, the only way to survive long term is to find a focused customer niche and then heavily target these customers – check back for a future blog post on this.

Are you getting hijacked?
Imagine you have just helped out a customer with a major problem, they have been turned from a ‘Detractor’ or a ‘Passive’ into a ‘Promoter’. They are happy you fixed everything and you are happy that you exceeded their expectations.

This customer tells a few friends that you did a great job, and these friends then decide to look you up so that they can check you out for their own needs. This is an entirely plausible situation, that the whole ‘Word of mouth is my marketing strategy’ philosophy is based on.

Then suddenly, something goes wrong. During your potential new customer’s Google search you got hijacked.

Hijacking occurs when someone is looking for your business, but a competitor sneaks in and steals your glory. It is like when your shy friend has been sitting at the bar slowly building the courage to go talk to the attractive member of the other sex a few barstools away. As they get up to take a step, slightly shaking with sweaty palms – out of nowhere a rival swoops in, buys the attractive member of the other sex a drink and they clearly hit it off. Your friend spends the rest of the evening lamenting why nothing ever goes their way.

Analogies aside – hijacking happens all the time to small businesses who are not keeping an eye on their competitors and do not have a real marketing strategy in place.

For example, I just searched for ‘Glenhuntly Dental Clinic’ and the first thing that popped up was an advertisement for NM Dental that says ‘Your Dentist In Glen Huntly’. Glenhuntly Dental Clinic is getting hijacked by a competitor.

Another example – searching for the company ‘Daylight Skylights’ – the first Google result is Illume Skylights. Ouch, you just got hijacked.

The facts are these: if you are getting hijacked, you are losing new customers and losing money.

The research shows that if you are second position on Google, you will get about half as many clicks as the first position. So if you are hijacked, your competitor is 200% more likely to sneak in before you and as long as they offer something of value to your potential new customer – this potential new customer’s needs could be met and they may not ever need to go back and actually find your business.

In short, your word of mouth referral that you worked so hard for actually ended up giving business to your competitor!

How to fix your word of mouth addiction:
This post has given you three things to look at:

  1. Are you consistently making customers happy enough to refer you a large stream of new business?
  2. Does your brand have what it takes to be competitive?
  3. Are you getting hijacked by competitors?

Please, please do not think word of mouth is a marketing strategy. Instead remember word of mouth is a valuable tool as part of a marketing strategy.

Your business will only succeed if you do a great job, and have the means to tell people you do a great job. People need to know you and know why they should choose you. Some customers will help spread the word, but the reality is unless you consistently blow your own trumpet – the competitive orchestra will drown you out fast.

Take a long hard look at what you do that people consistently want, and find the similarities between the people who want this thing. From here you’ve found your target audience and you just need to find a way to get your business in front of these people. If your message is getting to the people who want what you’ve got, the hard work is done – acquiring new customers will be a breeze.

About The Author

Alastair McLeod is the managing director at Encompass Media Solutions. He specialises in business strategy, data analytics, digital marketing of many kinds and website development.
When not working with EMS clients he is often found in the ocean windsurfing or surfing.

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