Real estate clients would rather refer agents than brokers.

If a real estate client were to promote or refer someone, I suspect it would most likely be their agent, not the brokerage, with a few notable exceptions. It is the agent who regularly interacts with the client to build rapport and any positive emotional experience and bond. Consequently, the agent ought be the natural recipient of a referral.

Editor’s note: This is the final part in a two-part series about customer loyalty in the real estate industry. Read Part I: "Promoters, detractors are your business," which examines the Net Promoter Score and why it may not be entirely applicable to the real estate brokerage industry.

Real estate clients would rather refer agents than brokers.

If a real estate client were to promote or refer someone, I suspect it would most likely be their agent, not the brokerage, with a few notable exceptions. It is the agent who regularly interacts with the client to build rapport and any positive emotional experience and bond. Consequently, the agent ought be the natural recipient of a referral.

I imagine only two exceptions: a brokerage brand built on saving a client money or making them money, or a first-mover innovative brokerage, the likes of which have not been seen before (like the one I have in my head). Folks like to brag about saving money, making money, or possessing rare knowledge.

A study based on the Net Promoter Score (a loyalty measurement that uses customer responses to a single customer satisfaction question — "How likely is it that you would recommend our company to a colleague or friend?" — to predict a company’s growth by repeat business and referrals) focused on companies in six industries: financial services, cable and telephony, personal computers, e-commerce, auto insurance, and Internet service providers.

I submit that these are all businesses with a value proposition that is heavily weighted on cost or profit.

Satisfied real estate clients are not proactive promoters

The Net Promoter Score does not distinguish between recommendation and promotion but defines the two as equal begetters of future business. In my opinion, this is semantic sleight of hand. I’d argue that recommendation and promotion are not the same. Promotion is proactive and recommendations are reactive.

Promotion (moving forward) connotes active unsolicited endorsement, which extends beyond friends to strangers. Promoters are the archangels of viral word-of-mouth marketing — the loving evangelists, spreading the good news of your company without need of request or prompting.

A recommendation is an endorsement given usually upon request. If you don’t ask, they won’t tell. The leap from recommendation to promotion is one I can’t see folks automatically making. I will recommend Verizon but I would not promote that company.

There are two main reasons why real estate clients may not promote: No social currency and the risk of referral failure rebound.

Where’s the coolness?

If there is no money at stake, promoters praise products and services because it makes them look good — as smart or cool or a harbinger of happiness.

When I tell friends, "Go see the film ‘Man on Wire,’ " I get the credit for giving them a good feeling. This coolness-that-rubs-off is what you find on Digg or "retweeted" on Twitter. Show me a brokerage promoted by a consumer in all of "Diggdom" or the "Twitterverse."

To move from "likeliness to recommend" to "active recommendations," every business needs to do more than delight its customers. It needs to be worth talking about.

The harsh truth is that, as a customer, no matter how much I like you, I will only talk about you if it makes my conversations more interesting. If it increases my prestige of being "in the know," and if it makes my friends laugh, or smarter or happier (see NetPromoter.com’s European Conference Blog).

Unfortunately, it doesn’t work that way for residential real estate brokerages. Where is the social currency to be collected in promoting your real estate brokerage? …CONTINUED

Referral risk: killing the messenger

There is an inherent risk in referring a professional services provider as opposed to a product manufacturer, especially when there is a lot at stake.

First of all, products are uniform — your iPhone will work just like mine. The performance (and results) are highly predictable. Not so with professional services, which vary with individual need and circumstances.

Secondly, the cost of a bad product is insignificant when compared to a real estate transaction. Products can be returned but houses … not so much.

I’d say people, and especially friends, are reluctant to recommend, much less promote, a brokerage because a lot of (their friend’s) money is at stake. If things go wrong, you get the blame, according to the ancient and immutable law of guilt by association. I’ll rate you a "10" but don’t expect me to lose a friend by promoting you. If you want to know a good restaurant, I’ve got "Yelpfuls" of recommendations.

Non-clients are better referral sources

This is an industry-specific objection to the application of the Net Promoter Score to residential real estate. In my opinion, there are better drivers of referrals than residential real estate clients, such as:

1. Other professionals. This comes down to money and self-interest. A professional is more likely to refer you, if you are good, because there is the hope/expectation that you will reciprocate. This principle that "Givers Gain" is the basis of BNI, one of the largest and most successful referral organizations on planet Earth. For real estate professionals this would include real estate lawyers, mortgage brokers, financial planners, and estate lawyers.

If you want to get value from a Net Promoter Score, I say send it to the other professionals who have clients they can refer to you. This turns the NPS into a skill metric — a more valuable metric, in many ways, than the NPS model, which does not measure skill or expertise at all.

2. Influencers and thought leaders. These are folks whose good word is trusted and acted upon by large numbers of people. How to reach these influencers is fodder for another post, as this one is already running obscenely long (and perhaps not likely to be promoted).

3. Employees and agents. Employee (and agent) satisfaction is as valuable for referrals and future growth, if not more so, than those 10s in the client checkbox.

National brands are better suited to NPS than hyperlocal ones

The results reported in Fred Reichheld’s article and book, "The Ultimate Question," are limited to those where the Net-Promoter score was successful. (See: "Measuring Customer Satisfaction and Loyalty: Improving the Net Promoter Score.")

If you look at the names in the NPS success stories, I’d guess most are national brands. The potential reach of promoters is much greater for these brands. I can recommend an Apple computer to my friends, whether they reside in Manitoba or Manila. But real estate is local. Hyperlocal, in many cases.

I’m not saying hyperlocal businesses can’t be promoted (they certainly can), only that the scope of any consumer referral is limited by the company’s market reach. If I used a broker in Manhattan, how does a referral help my brother Wesley in Weehawken, N.J.? It doesn’t even help my cousin Brooke in Brooklyn.

The bottom line

With limited local referral reach of customers, ratings blindness, fleeting customer elation, referral risk, no social currency and memory erasing non-use, the Net Promoter Score, when applied to residential real estate, is as leaky as a non-Pampers diaper. Just this fella’s opinion. …CONTINUED

You don’t always score with numbers. There is no scientific evidence the "recommend" question is, or should be, a better predictor of business growth compared to other loyalty questions.

Furthermore, single-item measures are less reliable (contain measurement error) than multiple-item measures. In the article "True Test of Loyalty," author and loyalty research consultant Bob E. Hayes explores how businesses can use loyalty research to predict actual business growth and to measure and manage different types of customer loyalty.

The reason why

NPS promoters note that companies ought to ask "Why?" they got the rating. And this is where the real value lies. It is the "Why?" that determines the value proposition being communicated to the consumer (or not getting across to them).

In the end, I’d say ask any cockamamie questions you concoct on the 10-point ratings scale as long as you get the reason "Why?" Think of it this way: "Why?" gets you "Wow," which gets you "WOM" (word-of-mouth promotion).

The value of NPS to real estate

I want to be clear about something. The purpose of this post was not to disprove the NPS model theory (I think it does work for certain industries) but simply to argue against its application to real estate — that is, that NPS customer satisfaction ratings may not be reliable indicators of word-of-mouth promotion and repeat business for residential real estate brokers.

For the reasons stated above, I believe it is flawed and thus unreliable.

Still, I do see the Net Promoter Score’s value, along with any number of other customer satisfaction ratings:

1. It has value as an indicator of customer dissatisfaction — though I believe nines and 10s are unreliable because of solicited ratings overuse: a zero or one rating may still mean a customer hates your guts.

2. It has value as an employee and agent motivator, provided it is disclosed, promoted and rewarded. As an agent, you are more sensitive to your NPS score if it affects your compensation. I’ll leave aside the agent’s influence on clients to get a 10. You can be sure agents are applying "S and L" (schmoozing and lubrication) to their clients to score a 10.

3. Its best value is probably as a marketing tool, if high scores are disclosed to the public in advertising campaigns. If you advertise to the world that your approval rating is 95 percent, folks tend to believe it. Sort of like during presidential terms.

4. It could apply to commercial and investment property deals, which involve repetition and thus are more likely to garner repeat business, if not gung-ho promoters — especially if clients enjoy repeated money-making trips to the bank. Heck, they can hate your crummy customer service but if you make them money they’ll likely not care.

5. The Net Promoter Score might work for rentals, which also occur more frequently, have less at risk, and are often cost-driven, especially among the young. And because young people know many of their peers are not real estate savvy, they get coolness marks for passing on a professional who can find them an apartment.

Click here to read Part I: " Promoters, detractors are your business."

Next: Why satisfied clients may not promote your business.

Joseph Ferrara is publisher of the Sellsius Real Estate Blog and a partner in TheClozing.com, a real estate news aggregator site. He is an attorney with 25 years of experience in New York, and he also coaches agents on the use of blogging and social networking.

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