Personal Recommendations: The First Choice in Marketing

We hope we have succeeded in getting you to think about the dubious value of advertising for your business, if you hadn’t already independently arrived at this conclusion. Now it’s time to talk about a marketing strategy that does work: personal recommendations.

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In our view, promoting personal recommendations is a superior, yet often overlooked, strategy to attract and keep customers. The idea of people making recommendations to other people is so familiar to us that it often takes a big stretch of the imagination to understand what a significant factor it can be in improving the profitability of your business.

Most business owners have no idea just how powerful this tool is because they don’t know how to use it efficiently. Yet ask yourself how many of the interesting people you have met, places you have visited, and more to the point, high quality small businesses with whom you have had positive relationships, have come to you from friends who cared enough to tell you about them.

A. Cost-Effectiveness

The overriding reason why personal recommendations are a better source of new customers than advertising is that they are more cost-effective. Monetary success in business obviously comes from selling a product or service at a price that substantially exceeds your cost to provide it.

The three main costs involved in doing this in any business are:

  • Providing the product or service the customer wants,
  • Getting new customers, and
  • Getting repeat business.

Notice that two out of three of these categories have to do with attracting customers. If you can accomplish both of them at a reasonable cost, your business should prosper. Clearly, the customer who is referred comes to you at a lower cost than the one who sees an advertisement.

In addition, as we will discuss in more detail below, a customer who is referred to you is both more likely to return and more apt to tell a friend about your business than is the person who responds to an advertisement. To better illustrate this point, let’s look at some businesspeople who have prospered using a personal recommendation marketing strategy.

Sam DuVall, who conceives of eating places as theater, has owned very successful restaurants: The Ritz Cafe in Los Angeles and the Elite Cafe in San Francisco. The Elite Cafe was one of the first places in Northern California to serve New Orleans cuisine. Money was invested in good food, good service and in creating a unique ambiance worth talking about, not in advertising.

DuVall neither advertises nor does any paid promotion in the conventional sense, yet the Elite Cafe has been packed every night for years. When asked about his success, DuVall said, “Nothing works as well as word of mouth. People believe in it.”

The equally famous and exclusive Los Angeles restaurant, Ma Maison, takes an anti-advertising stand still further, refusing even to list its phone number in the Yellow Pages and totally depending on personal recommendations to produce customers. And should you doubt this sort of marketing approach can be successful except for the most exclusive of restaurants, there is TGIFriday’s, an estimated $500-milliongrossing restaurant chain that is part of the Carlson Group (started in 1965 in New York) that caters to singles.

According to a July 1985 piece in Inc. magazine, Friday’s “has marketed itself successfully without spending a dime on advertising. And that is not likely to change. . . . [According to the founding president, Dan Scoggin], ‘if you’re performing by a standard of excellence, you don’t have to advertise. People know and they’ll tell their friends. If you’re a restaurant that is advertising, you must be mediocre.’”

The most highly recommended restaurant in the United States, the French Laundry in Yountville, California, has never advertised. eBay, as noted in Chapter One, doesn’t advertise but encourages their users to spread the good word by hosting a feedback forum.

To help assure new users that the auction really works, eBay created a “gripe and praise” forum where people share their experiences, which have been overwhelmingly positive. Substituting personal recommendations for advertising doesn’t mean that you do nothing but hope that your customers will tell others about your business. In fact, for most businesses, encouraging positive word of mouth is an active and ongoing endeavor involving the creation of a marketing plan that goes to the heart of the business.

For example, the Caravan Traveling Theatre Company of Armstrong, British Columbia, relies heavily on personal recommendations to promote its shows. As they travel from town to town in covered wagons pulled by Clydesdale horses, this naturally colorful group attracts a lot of attention and creates good publicity in an honest, fun way.

The Caravan Company doesn’t, however, just rely on this sort of attention. At the end of each performance, the cast asks members of the audience to encourage their friends in the next town (they schedule shows in towns reasonably close together) to attend. Often, audience members get so excited about the show that they not only call their friends but arrange to join them at the next stop to enjoy the show with them.

The movie industry is one of those most obviously affected by personal recommendations. Even though well over a billion dollars is spent every year on promoting new movies, people talking to people is what really counts. According to Marvin Antonowsky, head of marketing for Universal Pictures, “word of mouth is like wildfire.” This point is well illustrated by the number of low-budget movies that have succeeded with little or no advertising— and by the number of big-budget flops.

Like the movies, book publishing is another industry where lots of money is traditionally spent on advertising but can’t begin to compete with the power of friends telling friends about their discoveries. A few years ago, The Road Less Traveled, by psychiatrist M. Scott Peck, was just another psychology/relationship book languishing on bookstore shelves.

Then a few people read it, told their friends, and started a chain reaction that’s still going on. Today there are well over two million copies in print. The two people most responsible for spreading word of the book were one of the publisher’s sales representatives, who was so impressed that he insisted that book buyers at stores read the book, and a teacher in Buffalo, New York, who gave copies to teachers and ministers she knew. As a result, two churches invited the author to speak, the local bookstore began selling hundreds of copies, and the publisher (Simon & Schuster) took another look at the book.

A promotional tour boosted sales, which have kept rising.  The author has since published a teaching guide to the original book and a new book expanding on the ideas in The Road Less Travelled. 

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B. Overcoming Established Buying Habits

Personal recommendations are also one of the best ways to overcome a big hurdle for a business that wants more customers: the tendency of people to patronize the same businesses over and over. The average number of significant monetary transactions (not counting newspapers, carfare, etc.) for a family in the United States is about 65 per month.

This means that if you are typical, someone in your family opens a wallet, writes a check or hands over a plastic card 65 times each month to pay for something. For most of us, the great majority of these transactions are conducted with people we have done business with before. Consider your own habits. You probably tend to repeatedly patronize the same dry cleaner, hardware store, dentist, plant nursery and exercise facility. If you’re like most people, it takes a substantial nudge to get you to change one of these business relationships.

Given the fact that most people are fairly stable in their daily business patterns, how do you encourage a significant number to give your business a chance? Or, put more concretely, how do you get people to try your stress reduction class, law firm, laundromat or the new computer you are selling out at the shopping center? Personal recommendations are the answer.

Overcoming buying habits is difficult. However, once you realize that the majority of people locate a new product or service based on personal recommendations, not advertising, you have at least half the battle won. To win the other half, you must make your loyal customers, employees, suppliers and friends an integral part of your marketing plan so that your business will be recommended enthusiastically and often.

C. Basing Your Marketing Plan on Personal Recommendations

Once you have decided to base your marketing plan on personal recommendations, your next job is to understand why people go out of their way to recommend certain goods and services and not others. What gets them motivated to sing the praises of a business they think highly of?

Have you told a friend about a particular business— perhaps a seamstress, gardener, dentist or cheese store—in the last six months? What were the things about each of these businesses that caused you to recommend them? Most of this book is devoted to analyzing these kinds of questions. But the answers can be summed up as follows:

If your business is truly worthy of being recommended, you will be able to answer all or most of the following questions in the affirmative:

  • Is your business running smoothly on a day-to-day basis?
  • Are your financial records in order and up-to-date?
  • Are your employees knowledgeable about your product or service and enthusiastic about working for you?
  • Do you offer top-quality goods or services?
  • Do your customers have confidence that if something goes wrong with the products or services you sell, you stand behind them?
  • Is your website being kept up-todate?

Just the simple exercise of asking and answering these few questions may prompt you to make changes in your business. The rest of this book should help you implement changes that will really allow you to take advantage of personal recommendations.

Before we deal with the many practical techniques you can use to encourage customers to recommend your goods and services, it’s important to understand the elements that go into a positive recommendation. To succeed in the long run, a marketing campaign based on personal recommendation must be in tune with all of them.

1. Trust

Before you accept a recommendation from someone, you must trust his or her judgment and integrity. Dr. Sidney Levy, chairman of the marketing department at Northwestern University, explains it this way: “More personal than advertising and smacking of ‘inside’ information, word of mouth can be a uniquely powerful marketing tool.

If somebody you trust suggests something is meaningful, that is more important to you than information presented in an impersonal way.” A good example is when a friend goes out of his way to introduce you to someone. Such introductions are explicit or implied personal recommendations, and most people are careful about making them.

When you are on the receiving end of one, you evaluate the person making the introduction as carefully as you do the person being introduced. For instance, think of three people you work with and then imagine that each recommends a different pilot (none of whom you know) to take you up in a small plane. Whom would you be more likely to go with? Would you go with any of them? How much would your choice be influenced by the person doing the recommending?

2. Backing Up a Good Recommendation With Information

We must also consider whether or not our friends know what they are talking about when they make a recommendation about a business. One friend, Walter, once ordered bouillabaisse, tasted it, made a face and quietly sent it back, complaining it “tasted fishy.”

Did he confuse bouillabaisse with borscht? Would you take seriously his recommendation of a seafood restaurant or fish market? Another friend, Linda Richardson, spent three months traveling around the U.S. and Asia studying coffee roasting methods in preparation for starting her own coffee shop. Linda knows more about coffee than anyone else we know, so when we took a trip to San Diego recently, we tried out her favorite shop.

The espresso was great, as we knew it would be. The difference between Walter’s and Linda’s ability to make reliable recommendations is obvious. Linda knew her coffee. Walter did not know his fish. Finally, think for a minute about how many people you know who almost always steer you accurately, and others who sound off on every subject whether they know anything about it or not. Word of mouth works incredibly fast on the Internet.

Even a seemingly innocuous e-mail sent to a good-sized mailing list with an instruction to “pass this e-mail on” can easily spread like wildfire. Some people like to keep everyone on their mail lists informed about things they deem important— which can sometimes be virtually anything and everything. Our advice is to carefully consider and check out information before passing it on. A friend or business associate might understand one “save a starving child, click on this website” scheme, but will quickly learn to mistrust your judgment if you do it over and over.

3. Responsibility

Because of the nature of friendship, personal recommendations carry with them a degree of responsibility for the outcome. If your friend introduces someone to you who turns out to be untrustworthy, it can deeply strain the friendship, and your friend must make a sincere attempt to make the situation right or risk eroding your friendship.

Obviously, carelessly recommending a business can also strain a friendship. Imagine your feelings if a friend recommended a carpenter who tried to jack up the price in the middle of the job, or a computer consultant who screwed up your payroll system and then disappeared two days before payday. And if a product or service you recommend to someone doesn’t work out, it’s not always clear what you can do to deal with your friend’s hurt feelings.

For example, if your favorite hairdresser gives your mother-in-law a frizzy permanent, you will probably hear about it for years, whether you buy her a filet mignon dinner or not. Given the responsibility that goes with making a recommendation, people will not recommend your business unless they feel confident in it. As a direct consequence, your business policies and practices concerning errors, mistakes and problems are of great concern to your customers who make recommendations.

They will recommend your business only if they can really trust you to stand behind your product or service should something go wrong.

D. When Not to Rely on Word of Mouth for Marketing

We come now to an important warning about the power of word of mouth. There is an extremely good reason why many American businesses may not want to adopt a marketing plan based on the sorts of things we discuss in this book. This reason is simple. Word of mouth is just as effective in getting out the bad news about a business as it is to spread good tidings.

In fact, the Ford Motor Company estimates that a dissatisfied car owner tells 22 people, while a satisfied car owner tells eight. These figures may be going up; with the Internet, it is easy for knowledgeable people to complain to tens of thousands of other people—and they do. A good example is the former website, DrKoop.com. Dr. C. Everett Koop was a well-respected Surgeon General in two Republican administrations.

He started a website that used his name to dispense medical information and advice. His site spent $147 million to solicit business on other websites and was one of the most visited health sites on the Web. Why did it fail? Negative word of mouth. Nurses in America had complained for years about rashes caused by rubber gloves and been told by Koop when he was the Surgeon General that it was an imaginary problem. When DrKoop.com was founded, word got out that Dr. Koop had been on retainer to a rubber glove company at the time he dismissed the nurses’ complaints.

Moreover, “the site came under attack...for failing to notify visitors that a group of hospitals had paid to be included in a section on community resources, and that Koop himself was receiving a commission for products sold on the site.” (Industry Standard, April 17, 2000.) Certainly, if your product or service is no better than average, you should put down this book and avoid like the plague a marketing plan based on word of mouth. Businesses with average or negative attributes succeed only if they rely on such things as extensive advertising and highrent locations.

Such is often the case with businesses that cater to (or prey upon) tourists. For example, in Boston’s wharf area, there are numerous restaurants that Bostonians sneer at but unsuspecting tourists are eager to patronize. Many visitors don’t know any Bostonians and don’t have the benefit of the natives’ negative word of mouth. They don’t know that when they trustingly order local lobster, far from getting a freshly caught crustacean, they are being served lobster fresh from the freezer.

Even a media blitz won’t save an inferior product from bad word of mouth in the long run. Two products come to mind when we think of expensive national TV advertising campaigns that initially touted poor quality merchandise successfully to gullible viewers but were eventually destroyed by word of mouth. One was a miniature fire extinguisher, about six inches long, designed to be placed near the kitchen stove, and the other, an aerosol can of air used to inflate flat tires.

Neither product worked in an emergency, as promised in the ads. In each instance it took about six months for enough people to buy them, rely on them in an emergency, and tell their friends what rotten products they were. The advertising continued, but word of mouth was so powerful that both companies were soon out of business. We’ve also found, after years of giving marketing advice to small businesses, that it’s bad practice to help a business devise a marketing plan to encourage personal recommendations unless it can handle more customers.

Even if your business is in decent shape, it may still not be run well enough to handle the expansion that a marketing plan based on personal recommendations will bring and still maintain its quality. When a business is not ready for expansion, a large influx of new customers can easily produce a waking nightmare complete with dissatisfied customers, low employee morale and general frustration at not being able to provide good service.

Naturally, when this happens, customers will tell their friends, and a downward business spiral begins. For example, a well-known shoe manufacturer sent out a mailer advertising a sale. Rasberry was excited as she has a very narrow foot and they advertised her size in styles she liked. When she went to the store, she was very disappointed as not one of the styles was available in her size.

She was told by a frazzled saleswoman that they only stocked one of each style in each size! Still, since she was promised the shoes she wanted were available from the warehouse, Rasberry decided to order two pairs. A week later, she received a phone call saying one pair was actually no longer being made. A week after that came a rather poignant note from the salesgirl and her manager saying the other pair was also unavailable.

They did enclose a 20% off coupon for her next visit. Needless to say there won’t be a next time. Another, dramatic example of this phenomenon occurred when The Last Whole Earth Catalog (Random House), a publication that reviewed thousands of high-quality products designed for simple living, sold over a million copies and produced a huge upsurge of orders for some of the products reviewed.

When a year later the catalogue was updated, the names of dozens of businesses that had failed in the interim had to be omitted. In a significant number of instances, the reason for failure was that the business didn’t know how to cope with the large volume of new orders. It’s not only small businesses that are vulnerable to this phenomenon.

One of the largest HMOs in the country continually spends large sums of money advertising for new clients while leaving their current clients standing in long lines at the pharmacy and unable to get appointments with their doctors. When they finally are able to schedule an appointment, they are allotted such a short time as to leave both patient and doctor frustrated.

The results: an exodus of doctors who can no longer tolerate the situation and dissatisfied customers who are not shy to tell anyone who will listen. One of the authors listened to the complaints of an elderly woman propped up on her cane as she waited in line for her medicine while another patient went ranting down the hallway shouting, “Stop spending money for commercials and get me a doctor!”

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