7
Understanding Customer Relationships in a Digital World
Like Reed Hastings at Netflix, Charlie Ergen, CEO of Dish Network, staked his career on disrupting the media industry. Ergen began by hawking satellite dishes out of his truck in Colorado, appealing to rural residents who weren’t able to access cable. In 1980, he founded EchoStar, which sold satellite television systems and dabbled in space exploration. After the company launched a satellite in 1995, he debuted Dish Network, offering subscription television services to frustrated cable customers and those in rural areas without access to cable. By 2015, Dish Network had become a Fortune 250 company, with more than $15 billion in annual revenues.
Despite such success, Ergen and his team, including Roger Lynch, who was then the executive in charge of advanced technologies, worried about how Dish could attract and retain “cord‐cutter” and “cord‐never” customers abandoning traditional television for over‐the‐top (OTT) content accessed via the Internet. In 2013, one in ten households had cut the cord and transitioned to streaming TV. By 2016, that number had jumped to one in five, and analysts predicted it would reach one in two by 2025. These cord‐cutters skew younger and represent a growing trend. In 2017, MediaShift reported that nearly one‐third of millennials had cut the cable cord entirely and more than half of them used streaming more than traditional TV.
Dish hoped it had found an alternative when it launched Sling TV, an Internet TV service aimed primarily at 18‐to‐35‐year‐olds. When it debuted with Lynch as CEO, Sling offered a skinny bundle of 30 streaming channels for $20 per month, allowing customers to personalize their experience through packages such as “Kids Extra” or “Lifestyle Extra” for an additional $5 per month. Sling became the first service to live stream major sports, news, and other paid programs through an internet platform. The Wall Street Journal commented that Sling was “the most hopeful sign yet that cable providers are losing their chokehold on home entertainment.” On a subscription basis, Sling TV boasted cheaper rates than traditional cable television operators, as well as satellite providers such as Dish, although the total cost could vary due to Internet costs.
Why would Dish offer a cheaper subscription service that could cannibalize its core business? The answer lies in understanding segmentation and targeting. In this chapter, we will explore these concepts, which are key to strengthening your relationship with your audience. Successful media entrepreneurs understand the importance of “segmenting” customers into distinct groups, and then directing their marketing efforts, services, and products at these targeted segments. Finally, they position their products to ensure an advantage over their competitors. In this chapter, we will build on the concepts of how to define a unique value proposition and learn how media companies can more effectively reach current and new customers. We will discuss the following topics:
- How to approach customer segmentation.
- How to define a target market.
- How to use the adoption curve for targeting and positioning.
- The different types of customer relationships in the media industry.
- How to evaluate the profitability of each customer segment.
- How to measure and build loyalty and engagement.
Segmenting Customers
When marketing experts refer to “segmenting,” they mean dividing your customer base into distinct groups with specific needs, attitudes, and behaviors. The subgroups should all share a common set of characteristics. There are five common ways to segment a market or audience: geographic, demographic, attitudinal, behavioral, and psychographic. Segmenting an available market into subgroups typically involves a combination of these five variables.
- Geographic: County of origin, city, state, neighborhood, climate.
- Demographic: Age, gender, family size, family life‐cycle, income, education, religion, and race.
- Attitudinal: Perceptions toward a product or service, willingness to recommend, purchase intention.
- Behavioral: Usage, benefits, user status, user rates, comments, revenue or purchase levels.
- Psychographic: Lifestyle, social class, personality and motivations.
Let’s apply these theories to Sling TV. When Sling launched in 2015, its CEO Roger Lynch highlighted the importance of segmenting. Lynch forecast Sling would avoid being dragged into the traditional TV package because it was aimed at specific customer segments. Using the variables above, Sling’s marketing team divided its customers along two variables—their attitude toward paid television and their demographics such as age, income, and education. With these two variables, Sling identified three customer targets:
- Cord‐nevers: These were people who had never bought paid television (cable or satellite). They were younger, better educated, more affluent, and more likely to be males living in an urban area.
- Cord‐cutters: These were people of any age who had given up on traditional television but still wanted to have the channels they loved. Like the cord‐nevers, they tended to be younger than the typical Dish customer. They were more likely to have a family.
- Supplementers: These were people who had paid television, but wanted more access to more content. They could be of any location, age, or family status.
Some may be tempted to “over‐segment,” which is counterproductive because it is usually not profitable to discretely target and position products and services for all segments. There are four tenets of effective segmentation.
The first rule is to ensure the customer segment is accessible to the firm or organization. This means the segments can be easily reached and served, based on what this segment wants to achieve. For example, let’s say you are starting an e‐newsletter about healthy cooking. There may very well be a segment of extroverted, empty‐nest, urban‐dwelling, male vegans who would subscribe to such a newsletter, but this segment would be difficult to reach and target.
The second rule is that the segments must be responsive. This means that each segment will respond differently to products, services, and communications. Each segment must be independently differentiable. Cord‐nevers, cord‐cutters, and supplementers all have different attitudes toward pay TV, ensuring they are true customer segments.
The third rule is that this segment must have tactical reach. Marketers must be able to design marketing tactics and plans to reach segments. A 2016 ad illustrates how Sling used messaging to appeal to the cord‐cutter segment, trying to lure them away from pay TV. Actor Danny Trejo, a perpetual villain in films and television shows, opened with, “People say I’m scary,” and then followed with “I’m not nearly as scary as pay TV.”
The final guideline of effective segmenting is that the segments must have purchasing power. Marketers should be able to use predictive forecasting to determine if there is enough purchasing power in the segment to profitably sell the product. In the case of Sling, market research from Nielsen shows that in just one year (2015–2016) over‐the‐top/broadband only households increased by an additional 2.5 million while cable households sank by 1.8 million.
Targeting Customers
After segmenting your customer base, you then need to decide which segment you want to target and serve. You need to be confident about your target market because it underpins your strategy, which will decide your business’s success or failure. Your company can target only one segment, or several, but most marketers choose both primary and secondary targets. For example, Sling chose cord‐nevers as its primary target, and cord‐cutters and supplementers as its secondary targets.
The most common way to evaluate a segment is to measure its size and its growth potential. A segment that has a slightly smaller size, but a very strong growth rate may be more attractive than a larger segment with a flat or negative growth rate. For example, when Hastings founded Netflix as a DVD‐by‐mail service, he was targeting a segment—DVD owners—that was small in 1997, but had strong growth potential.
Next, you should consider each segment’s structural attractiveness. Weigh the level of competition, substitute products, power of buyers, and power of suppliers. This is especially important in the media industry where a number of disruptors have created products that overlap with other players, creating “contested boundaries.” Sling’s cord‐cutting segment, for example, was already being served by Netflix, Hulu, Vudu, and Amazon. However, while Sling shared overlapping, contested boundaries with these large and formidable competitors, it offered ESPN programming, not offered by competitors and highly coveted by male millennials.
Finally, you should combine qualitative and quantitative analyses to determine whether targeting the segment will help your company achieve its objectives. In the case of Sling, targeting cord‐nevers and cord‐cutters helped supplement the list of subscribers to Dish, which was dwindling.
You might consider factors such as the audience’s viewing and digital behavior. Are they distracted? Do they prioritize viewing on demand? Considering the audience’s behavior can help you segment based on attitudes and digital personalities. Figure 7.1 segments customers based on how they prioritize their access to the content and their emotional attachment to the platform. This example, which comes from marketing experts, Saul Berman and Lynn Kesterson‐Townes, illustrates how a media and entertainment company could segment and target by attitude and digital personas. Looking at this matrix you see that the two largest segments are the extremes: those with low access to content and low emotional attachment to the platform compared with the segment that has high access to content and strong emotional attachment.
Figure 7.1 Media and entertainment sample segmentation.
The final step is to consider how you will position your product to your targeted customer segments. Simply put, positioning should be based on the target audience’s needs and wants. Positioning is the place a product occupies in a consumer’s mind relative to similar products. This is embodied in the positioning statement, which helps define the product in a simple declarative sentence. When crafting your positioning statement, you should consider sources of differentiation from competitors. You can differentiate your product along any of these dimensions: content, distribution, service, image, personality, and price. For example, Sling positions itself as “the only live TV service that gives you choice, customization, and control you deserve.”
Your product should also have at least four, but ideally all of these characteristics: it must be important to the target market, distinctive, superior, communicable, preemptive, affordable, and profitable. Consider how Sling TV stacks up against these seven characteristics. It offers ESPN streaming, which is important to its target market of millennial male cord‐nevers and cord‐cutters. It is also distinctive, because it was the first OTT service marketing “a la carte TV” where you could pick your own channel line‐up. Sling claims to be superior because customers can watch it anytime, anywhere, just by downloading the app. Finally, Sling appeals to customers based on its affordability, claiming to have a “price you can’t beat.”
Applying Targeting and Positioning: Types of Purchasers in the Life‐Cycle of a Product
Let’s now consider how to apply these targeting and positioning concepts to marketing. One of the most common approaches is to use the Diffusion of Innovation curve. Communication specialist Everett Rogers introduced this theory in the 1960s to explain who adopts technology and how they use it. According to Rogers’s theory, a product will encounter five types of purchasers as it moves through its adoption life cycle: innovators, early adopters, early majority, late majority, and laggards.
By using the Diffusion Curve (see Figure 7.2), you can estimate the size, growth potential, and structural attractiveness of your target customer segments. Each consumer's willingness and ability to adopt an innovation or new technology depend on their awareness, interest, evaluation, trial, and adoption. People can fall into different categories for different innovations: a millennial might be an early adopter of WhatsApp, but a baby boomer may be an early adopter of the iPad.
Figure 7.2 Maloney’s 16% rule and the diffusion of innovation.
Once a product has attracted innovators and early adopters and effectively reached 16% of its target market, Australian marketer Chris Maloney recommends changing the message from one based on scarcity to one based on social proof. This, he says, will accelerate purchase by the early majority segment and create a viable tipping point—the critical mass of purchasers necessary to achieve profitability and sustainability for your product.
Here’s how Rogers assesses how people respond and adapt to new technologies:
- Innovators are social creators and the first to purchase a product or service. Rogers argues they represent only 2.5% of all purchases of the product or service. They don’t shy away from trying completely new products or technology and will pay a premium for this benefit. Surprisingly, innovators are unlikely to thoroughly research and consider new purchases. Sales to innovators are not usually an indication of future sales because innovators tend to purchase simply because a product or service is new. If innovators dislike the product, they can torpedo it on social media and through word of mouth.
- Early adopters are visionaries, social creators, and more integrated into the social system than innovators. They make up 13.5% of purchases. This target, more than any other, has the greatest influence and social capital in media. Early adopters know they must make grounded decisions if they want to safeguard their social status.
- Early majority consumers are pragmatists, social critics, and collectors. Representing 34% of purchasers, they wait for a product to become mainstream. These consumers are cautious, and likely to respond best to marketing strategies based on customer testimonials. In order for a product to achieve scale and sustainability, it must attract early majority purchasers.
- Late majority purchasers are conservatives, social joiners, and spectators. They comprise another 34% of sales. They tend to purchase when a product has become widely adopted, and is usually in its mature phase.
- Laggards are skeptics and socially inactive, according to Rogers. They represent 16% of total sales. Laggards purchase a product toward the end of its life cycle, waiting for the price to come down.
If you have a new product or service, such as Sling in 2015, you probably want to target innovators and early adopters with your messaging. These groups have the highest degree of opinion or thought leadership and can help persuade more customers to purchase, allowing your product to achieve critical mass support. Early adopters, especially, tend to be more social and more aspirational than later purchasers. Consider, for example, how crucial early adopters of DVD players were for Netflix’s initial success in Chapter 6. Early adopters tend to have the following characteristics, according to Rogers:
- Demographics: They are younger, better educated, upwardly mobile and have higher social status than later adopters.
- Personalities: Early adopters tend to have a more favorable attitude toward change and can handle uncertainty, as well as abstractions, better than later adopters. Early adopters are likely to respond best to marketing communications based on scarcity and the promise of being trend‐setters. Through research, Dish found that “cord‐cutters” and “cord‐nevers” were frustrated with traditional television service, which they perceived locked them into long‐term contracts, had veiled pricing, and included unnecessary channels. Using the slogan, “Take Back TV,” Sling produced an ad comparing cable companies to childhood bullies, with each bully representing a common customer complaint: long‐term contracts, hidden fees, and paying for channels you don’t watch. This positioning helped Sling target a specific customer segment: 18‐ to 35‐year‐old males who did not subscribe to pay TV.
The majority of early adopters of Sling were younger than Dish subscribers, and the early messaging spoke to their frustration with traditional television service. But Sling also appealed to a smaller segment of Dish Network consumers, who abandoned their satellite subscription for a cheaper alternative. Speaking about this dynamic, Dish CEO Ergen said: “There’s no question [Sling] will cannibalize our [Dish’s traditional] business.” However, “We know that millions of people every year are cutting the cord. We’re better off with half a loaf—$20 a month—than with getting nothing out of that customer.” This suggests Sling TV will employ a different marketing message as it moves more mainstream, and attempts to attract older, more conservative purchasers—including more Dish subscribers.
Categories of Customer Relationships
Once you have selected the customer segment or segments that you will target for your products and services, you need to determine the type of relationship your organization will have with the customer. You should clearly delineate the type of relationship you want to establish with each customer segment so that your firm can provide appropriate support to nurture a relationship. There are three reasons for developing a relationship. You hope to acquire a new customer, retain an existing one, or upsell an existing customer (i.e., convince them to pay more for a premium product). The tactics you employ will vary, depending on your objective. For example, Sling used aggressive pricing and the promise of favorable distribution to attract early customers. On the other hand, cable providers are focused on customer retention and increasing the average revenue per user. Therefore, they offer attractive bundles, with the most appealing and expensive bundles priced to encourage upselling to faster Internet speeds with premium programming.
In their 2013 book, Business Model Generation, Alexander Osterwalder and Yves Pigneur identify six categories of customer relationships which may co‐exist in a company’s relationship with a particular customer segment. These are highlighted in Table 7.1 and range from self‐service to dedicated personal assistance.
Table 7.1 Types of customer relationships.
Source: Adapted from Osterwalder et al. (2013).
| Type of customer relationship | Characteristics |
| Personal assistance | The most traditional customer relationship; the customer can communicate easily with a customer service representative to get help during or after the sales process |
| Dedicated personal assistance | A more improved version of personal assistance; a representative is assigned to a particular customer or client. Organizations form this type of relationship when they want a deep and intimate connection with the customer over time. |
| Self‐service | Customers are provided with the means to help themselves; the organization does not have direct contact with customers |
| Automated services | This relationship leverages data, gleaned through behavioral or personal online profiles, to give customers access to customized self‐service. This data provides more customized opportunities for upselling and retention. |
| Communities | A relatively newer form of customer relationship, with organizations facilitating conversations among customers and prospects to exchange information and solve problems |
| Co‐creation | This moves beyond the traditional customer‐vendor relationship to jointly create value for the organization and customer, typically through a closed community of members |
In the case of Sling, researchers found that the customer segments were most attracted to relationships based on personal assistance (for technical difficulties) and self‐service (for streaming live television). They used these insights to tell consumers they could drive their own viewing experience but Sling would provide personal assistance whenever technical problems cropped up.
The customer relationships that will best fit your organization’s value proposition have a direct influence on the customer experience. This is why it is crucial to outline and support the relationship each customer segment expects. Otherwise, customers will feel dissatisfied. For example, during the growth phase of the cable industry, cable operators gave away set‐top boxes and routers. The customer relationship during this phase was mostly a self‐service type of relationship, with occasional personal assistance for technical issues. This type of customer relationship worked for the growth phase because customers were so eager to obtain the new product. However, once the market became saturated, cable operators switched to a customer retention and upselling strategy, but did not offer a different customer relationship. This led to widespread dissatisfaction with cable operators, making the cable industry among the worst in customer satisfaction for nearly a decade. Only recently have cable operators shifted to the personal assistance‐type of customer relationship, redesigning customer support functions and installation services.
Considerations in Designing Customer Relationships
When media companies describe and measure the “health” of the customer relationships they have created for their target segment(s), they may use one or several of the following common descriptors:
- Customer satisfaction is used to describe and measure how products or services supplied by an organization meet or surpass a customer’s expectations. In its simplest form, planning or achieving excellence in customer satisfaction means that a media organization has exceeded the promised product/service value proposition that the customer expects. Customer satisfaction is typically measured in a survey completed by respondents from the targeted segments.
- Customer loyalty is used to describe and measure the degree to which a customer segment will repurchase an organization’s product or service. More specifically, loyalty measures the overall consistently positive physical attribute‐based satisfaction and perceived value of the entire experience, which includes the product or services. Customer loyalty is typically measured by a survey completed by respondents from the targeted segments.
- Engagement is used to determine the degree of attention, effort, or involvement between a brand (or media organization) and the target segments. As such, customer engagement is built and rebuilt (or destroyed) with every brand interaction, whether that’s making a purchase, reading a tweet, joining a loyalty program, receiving an email, passing by a billboard, stumbling onto an online review, having a conversation with a friend, or any other exposure that generates involvement. Engagement is typically measured by mapping online interactions and other involvement by customers and prospects.
- Emotional (brand) attachment is used to determine the highest degree of emotional attachment between a brand (or media organization) and the target segment(s). Fast‐moving target audiences operating in frenetic environments of multiple devices, channel blur, and collapsed transaction times have created unprecedented complexity for marketers, as well as media enterprises. One of the most rigorous measures of the “health” of a customer relationship is brand attachment. Brand attachment forms when the target audience believes that the brand is part of who they are, feels a personal connection, and automatically and naturally has positive thoughts and feelings about the brand. Products or services with high brand attachment have five times the number of digital interactions and also have significantly higher customer loyalty than brands with lower brand attachment. Emotional attachment is typically measured by media organizations by either administering surveys to customers or by extracting raw conversations from social media and applying linguistic algorithms to evaluate them.
Evaluating Profitability
You need a system for evaluating the profitability of each customer segment. A key metric is the Customer Lifetime Value (CLTV) calculation, which measures the profitability of individual customers and customer segments over the entire period in which the customer deals with the firm, from acquisition to abandonment. Most service and retail marketers already recognize CLTV as one of the most important key performance indicators. However, it is not as widely used among media organizations because it is often difficult to collect accurate data.
In a digital world, CLTV can be calculated on a per‐customer basis, but is more typically determined for an average customer in each of its target segments. CLTV helps organizations understand long‐term value versus short‐term gain, and can be more informative than average profit (ROI), especially related to acquisition or retention cost decisions. Figure 7.3 is a simple calculation of the ROI method for a large online entertainment rental (streaming) service.
Figure 7.3 Simple Return on Investment (ROI) calculation for an average customer at an online streaming company.
Considering that the cumulative profit for an average customer of this online entertainment rental service shown in Figure 7.3 is $420, what would you spend to acquire a customer—$50, $150 or $300? If we follow the traditional transaction or ROI (Return on Investment) view, we could select any of the three acquisition costs (because they are all less than $420). But, if we are following the CLTV method (see Table 7.2), our answer would depend. The reason is that not all customers are alike! Our online entertainment rental service has three different segments of customers that have different consumption and usage patterns, and therefore different value to the media organization.
Table 7.2 Customer Lifetime Value (CLTV) calculation for three customers of an online streaming company.
| Ms. Best | Ms. Average | Ms. Negative | |
| Average order ($) | 22.50 | 15 | 12 |
| Cost/order ($) | 12.50 | 8 | 7 |
| Profit/order ($) | 10 | 7 | 5 |
| Purchases/year | 26 | 12 | 3 |
| Lifespan | 10 | 5 | 1 |
| Lifetime profit ($) | 2,600 | 420 | 15 |
| Acquisition costs ($) | 300 | 150 | 50 |
| Profit/customer ($) | 2,300 | 270 | (35) |
Clearly, we could spend much more to acquire the “Ms. Best” segment of customer than the “Ms. Average” customer, and we would not want to spend anything to acquire the “Ms. Negative” customer segment.
The simplest formula for calculating CLTV is as follows:
Annual Profit Contribution per customer (for each year) times the Customer Retention Rate (for each year) minus the Initial Cost of Customer Acquisition
In order to use this formula to calculate CLTV for each segment, a media organization will need to know:
- the initial cost of customer acquisition;
- the annual revenue contribution per customer (including all sources including advertising that is attributed to the customer);
- the annual direct costs and fulfillment per customer: (including advertising costs);
- the annual customer retention rate.
As you can see, CLTV is a function of both the revenue generated by the segment through transaction frequency and amount, as well as the cost to acquire, serve, and retain customers. Therefore, the type of relationship that a media organization may establish by customer segment will have a direct impact on CLTV. For example, self‐service and automated service types of customer relationships may require significantly more up‐front costs in systems and labor, but the costs to maintain, serve, and retain beyond the initial investment are much lower. Conversely, dedicated personal assistance will likely require a smaller up‐front cost, but the cost to maintain, serve, and retain on a monthly basis will be much higher than the other types of customer relationships.
Let’s explore how we would apply this framework to Sling TV. Customers switching from Dish Network to Sling will spark a decline in revenue in the short term because revenue from Dish at $90 per‐month is higher than revenue from Sling at $20. However, we need to use CLTV to measure the revenue and cost of Sling TV’s customer value on Dish’s overall business. According to Ergen, Sling’s lower billing revenue will be offset by three factors: improved ad revenue, lower acquisition, and lower cost to serve.
Financial analysts noted that the improved ad revenue per subscriber for Sling would come from tailored digital advertising on Sling, which was not possible under Dish Network’s traditional offering. They also assessed that the lower customer acquisition per subscriber for Sling TV would enhance company revenues. Customer acquisition costs are significantly lower because, unlike Dish, Sling doesn’t need to schedule an appointment, do a credit check, send over a truck, and install a satellite dish.
Therefore, CLTV reveals that replacing a $90‐per‐month customer who has flat or declining ad revenue and is expensive to acquire and serve, with a $20‐per‐month customer who has increasing ad revenue, and costs less to acquire and serve, is not as terrible as it would appear. Sling TV cord‐nevers and cord‐cutters represent a large and growing segment that is structurally attractive and helps achieve company objectives. Moreover, cannibalizing Dish’s own subscribers is better than losing subscribers to the competition, whether that is a traditional cable company or a newer technology streaming service.
The Importance of Customer Loyalty
As the CLTV calculation illustrates, longtime customers, who make many purchases during the time they are associated with a firm, ultimately drive overall profitability for a company. In his 1996 book, The Loyalty Effect, former Bain consultant Frederick Reichheld established that a 5% increase in customer retention could yield anywhere from a 25–95% improvement in a company’s bottom line. In searching for the key to retention, Reichheld found that there was very little connection between customer satisfaction rates and retention, or between a company’s growth in revenues and profits. Similarly, when companies used only financial metrics to assess success, they focused on growing the bottom line regardless of whether profits in a single year represented the rewards of building long‐lasting relationships with customers, or the consequences of abusing them.
Therefore, he concluded, it was important for companies to both measure and track customer loyalty over time because loyal, longtime customers tend to buy more products and services, pay more for the value they perceive a product delivers, and they cost less since firms don’t have to continually acquire new customers. Reichheld also hypothesized that loyal customers “sell more”—they recommend the product or service to others. “The tendency of loyal customers to bring in new customers is particularly beneficial as a company grows…,” he said. “In fact, the only path to profitability may lie in a company’s ability to get its loyal customers to become, in effect, its marketing department.”
So how can companies track loyalty? Reichheld researched this question for more than a decade and ultimately concluded that most B2C (business‐to‐consumer) companies can effectively gauge and track the overall loyalty of current customers by asking one simple question: “On a scale of one to ten, with ten being highest, how likely are you to recommend [company X] to a friend or colleague?” Reichheld used a ten‐point scale because it offered more nuance and gradations than a five‐point scale, and less confusion for the respondent than a hundred‐point scale. (Both five‐point and hundred‐point scales are often used when customer satisfaction surveys are conducted.)
Since people tend to be overly generous in assessing their experience with a company, he determined that only those people who rated their company experience at a 9 or a 10 were loyal customers. He called these people “promoters.” They have a high level of engagement and emotional attachment to the product or service. Those who gave a rating of “7” or “8,” he classified as “passives” or “fence‐sitters,” customers who were currently satisfied but not emotionally attached to a brand, and therefore, subject to being lured away by a competitor. Those who gave a rating of “6” or less, he classified as “detractors,” unhappy campers who were very dissatisfied and probably dissing the product to anyone who would listen. Working with the software company, Satmetrix, Reichheld used this question to then produce a rating called the Net Promoter Score (NPS). To calculate a NPS, a company subtracts the percentage of promoters from the percentage of detractors (Table 7.3).
Table 7.3 How to calculate a net promoter score (NPS) (%).
| Calculation | Example (%) |
| % of promoters | 68 |
| % of detractors | 41 |
| Net promoter score | 27 |
Reichheld’s research suggests that an average business has an NPS of 27%, but that number fluctuates significantly depending on the industry segment (see Table 7.4). For example, as a group, specialty stores and online shopping sites have some of the highest NPS scores—an average of 60 and 56, respectively. Tablet computers and online entertainment sites also receive high scores from loyal customers. At the low end of the scale, however, are Internet service providers with a NPS of 2 and cable company providers, with a NPS of 3. Typically, media products—such as newspapers, magazines or films—range between a NPS of 19 to as high as 50.
Table 7.4 Net Promoter Score Leaders by Sector and Average Sector NPS Scores.
Source: Adapted from Satmetrix, US Consumer 2017: Net Promoter Benchmarks at a Glance.
| Sector | Avg. NPS by Sector | NPS Leader by Sector | NPS Leader Score |
| Online Shopping | Amazon | 56 | 73 |
| Tablet Computers | Amazon | 53 | 66 |
| Online Entertainment | YouTube and Netflix | 46 | 62 |
| Laptop Computers | Apple | 39 | 62 |
| Smartphones | Apple | 36 | 60 |
| Cable/Satellite TV | Verizon Fios | 3 | 27 |
| Internet Service | Verizon Fios | 2 | 21 |
Since its introduction, Reichheld’s net promoter metric has been adopted by hundreds of companies. This includes fast food franchises, auto dealers, and rental car companies, as well as insurance companies, and brokerage houses. The NPS can be used to measure current loyalty and compare your company’s performance to others in the same segment, as well as identify potentially attractive customer segments to target with new products, based on the demographics, media consumption patterns, and psychographics of loyal customers. This information can then be used to design products that attract new customers. Alternatively, the NPS can be used to diagnose problems in the current business model and come up with solutions.
Using the NPS framework, let’s examine why Dish would cannibalize its own business. According to data compiled by Satmetrix, the average NPS for cable or satellite television companies is 3. This industry ranks at the very bottom of the NPS scale, only slightly above Internet service providers. Various industry analysts speculate that Dish Network’s NPS is even lower than the industry average—perhaps as low as –3—based on Dish’s quarterly reports. Since 2012, Dish has lost an average of 400,000 customers. In contrast, Sling subscribers increased from 169,000 in 2015 to two million in 2017. By tracking the loyalty of these new Sling customers, Dish may be able to make timely course adjustments in strategy and tactics that will engender loyalty and emotional attachment to this new product so that Sling customers will recommend it to their friends and colleagues.
Dish’s pivot to Sling TV shows the value of using NPS metrics to track customers’ habits, preferences, and loyalty. Keeping up with changes in customer media consumption and monitoring their loyalty and attachment to current technology are key to protecting your business model and maintaining a unique value proposition. Netflix recovered from a serious customer misstep and transformed its business model by producing original streaming content. As a result, in 2017, Netflix had a NPS of 62, considerably above the online entertainment industry’s average score of 46.
In recent follow‐up research, Reichheld has found that companies with the highest customer loyalty often grew revenues at more than twice the rate of their competitors. That is because loyal and engaged customers, who form emotional attachments to a brand will, over time, buy more, pay more, cost less, and, most importantly, sell more by recommending it to their friends and colleagues.
Summary
Successful media entrepreneurs understand the process of dividing an available market or audience into distinct groups with specific needs, attitudes, and behaviors to create customer loyalty. The most common ways to segment the market are geographic, demographic, attitudinal, psychographic, and behavioral. Media entrepreneurs should use these factors to determine which segments they are best poised to serve.
After segmenting the market, media entrepreneurs should position their product or services for targeted customers. They should seek to answer these questions: How can we give the target audience what they need and want? How can we differentiate ourselves based on content, distribution, service, image, host, or price?
A key framework for understanding targeting and positioning in the media is the Diffusion of Innovation, which suggests adopters of any new innovation can be characterized as innovators, early adopters, early majority, late majority, and laggards. A media organization can use this framework to strategize their target customer segment and delineate the type of relationship it wants to establish. When establishing a customer relationship, the media company should consider the degree of functional versus emotional connection that the organization plans to achieve.
The final step to creating a strong customer relationship is to understand how to evaluate profitability. Media organizations should calculate a customer’s lifetime value (CLTV), which is based on the initial cost of customer acquisition, and the annual revenue contribution per customer, direct costs, fulfillment per customer and retention rate. Loyal and engaged customers, who are emotionally attached to your brand or product, will buy more, pay more, sell more, and cost less, leading to increased growth in customers and profits.