The Big Upside of Customer Participation

Companies think a lot about cultivating word of mouth among customers. But what they should also be paying attention to is customer feedback. New research shows that encouraging customers to provide feedback and suggestions helps tie them more closely to a business, and that customers who participate are actually more likely to become repeat customers and buy more of a company’s products and services.

Drawing on their global research, Omar Merlo (Imperial College Business School in London), Andreas B. Eisingerich (Imperial College Business School) and Seigyoung Auh (Thunderbird School of Global Management) write that “both customer-to-customer reviews and customer-to-business interactions can influence a customer’s propensity to buy more of a company’s products and services.” The act of providing feedback and suggestions helps align customers to a business, and “companies can even recapture defecting customers simply by contacting them and encouraging them to participate.”

In their article “Why Customer Participation Matters,” in the Winter 2014 issue of MIT Sloan Management Review, the researchers quote some managers directly: “The chief operating officer of an international consumer electronics company noted: ‘Levels of feedback is a way we identify our most profitable customers. Those that bother to write to us do care. And they do spend money with us.’ . . . The CEO of a large Chinese financial services organization recounted an incident in which a customer who was about to defect wrote to the company to give feedback and offer some suggestions. The company immediately contacted the customer, addressed his concerns and recommendations and offered him the honorary title of ‘quality controller.’ The customer decided not to take his business elsewhere and became one of the company’s most loyal and profitable customers.”

The researchers also looked at a sample of 327 customers of a global bank headquartered in Europe who engaged in either positive word of mouth, or provided suggestions and feedback directly to the company, or both. In trying to identify the most valuable customers, they found that customers who ranked high in participation tended to purchase more products and services, regardless of whether they did or did not engage in positive word of mouth. In other words, participation was more closely associated with customer spending than word of mouth was.

The researchers provide six guidelines for companies thinking of implementing programs to encourage customer participation. Among the guidelines is this: start simple and expand over time.

“Customer participation does not have to be complex. The easier it is for customers to participate and the less time it takes, the more likely it is that different types of customers will engage,” the authors note. As an example, they describe how a company offering online personal shopping assistance services opened a direct, personal communication channel with customers by including a handwritten note and sometimes even a personalized gift with a customer’s first order.

“The note initiates a dialogue with the customer,” write the authors. “The result: The company says it gets information that is richer and more detailed than anything it might obtain from an equal investment in elaborate analytics.”

For additional guidelines and suggestions, read the full article.