{"id":71,"date":"2009-09-13T23:46:25","date_gmt":"2009-09-14T04:46:25","guid":{"rendered":"http:\/\/www.yupingliu.com\/wordpress\/2009\/09\/13\/word-of-mouth-or-traditional-marketing\/"},"modified":"2010-03-17T02:38:04","modified_gmt":"2010-03-17T07:38:04","slug":"word-of-mouth-or-traditional-marketing","status":"publish","type":"post","link":"https:\/\/www.yupingliu.com\/wordpress\/2009\/09\/13\/word-of-mouth-or-traditional-marketing\/","title":{"rendered":"Word-of-Mouth or Traditional Marketing?"},"content":{"rendered":"

Some people may disagree with what I am about to say here: online social networks bring people closer to each other. At least that is the personal impact that they have had on me.\u00a0 But what does this mean for marketing?\u00a0 One answer is that word-of-mouth between consumers is carrying more weight in how we choose and consume products. Whether we love or hate a product, now it is so easy to make it known to the public that we are essentially affecting the opinions of other consumers (from total strangers to close friends) every day.<\/p>\n

Managers are often hesitant to invest in encouraging word-of-mouth, however, as its effects are notoriously difficult to measure.\u00a0 This is because word-of-mouth behavior is often unobserved, and it is difficult to tease out the concurrent impact of traditional marketing.\u00a0 These are the exact problems a recent article by Michael Trusov<\/a> and colleagues in Journal of Marketing<\/em><\/a> tried to tackle.\u00a0 Entitled “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from
\nan Internet Social Networking Site”, this article offers a clear answer to the relative effectiveness of word-of-mouth vs. traditional PR and marketing.<\/p>\n

\"Word<\/div>\n

What did they look at?<\/strong>
\nThe impact of word-of-mouth, event marketing, and media appearance on the sign-ups for an undisclosed online social network.<\/p>\n

Some intuitive findings: <\/strong>
\nMore new sign-ups resulted in more word-of-mouth; event marketing led to more media appearance, and vice versa;\u00a0 word-of-mouth was not affected by previous event marketing or media appearance, however, suggesting consumers’ relatively independent opinions and actions.<\/p>\n

Some not-so-intuitive and very important findings:<\/strong>
\nThe 3-day elasticity of sign-ups with respect to word-of-mouth was .17. In layman’s terms, this means that doubling the amount of word-of-mouth increases sign-ups by 17%. The corresponding impact from event marketing and media appearance, in contrast, was only 1.7% and 2.2%. The gap became even bigger with regard to long-term effects.\u00a0 In the long run, the effect of word-of-mouth is 20 times that of event marketing and 30 times that of media appearance.\u00a0 While doubling event marketing or media exposure led to 1.7% and 2.6% respective increase in sign-ups in the long run, doubling word-of-mouth increases sign-ups by a full 53%. Financially, an outbound word-of-mouth referral translates into 75 cents\/year increase in advertising revenue.<\/p>\n

What does this mean for marketing practice?<\/strong>
\nWord-of-mouth is a powerful tool for customer acquisition.\u00a0 With the help of more powerful tracking tools provided by social networks and websites, it is possible for managers to measure the return from word-of-mouth activities. The mathematical approach used in this article (vector autoregressive modeling) further helps tease out the impact of other marketing and PR activities so that the true effect of word-of-mouth can be accurately measured. Together, this should reduce the hesitation to incorporate word-of-mouth into a company’s overall marketing strategy. The findings from this article also provide a strong motivation to better utilize word-of-mouth channel of communication.<\/p>\n

Cautions<\/strong>
\nReaders should be cautioned from taking the results from the above research too literally.\u00a0 Two things should especially be taken into consideration.\u00a0 First, the data came from an online social network.\u00a0 Customers on such websites are usually highly motivated to invite their friends, and those invited by their friends are also very likely to sign up.\u00a0 If we were to change the context to, say, online banking, both the level of referral and the impact of referral are likely to be lower.\u00a0 Second, the word-of-mouth activities studied in this article are all organic referrals initiated by consumers themselves. If the word-of-mouth had been stimulated by the company (say, with financial incentives), the referrals may not have been considered as genuine to other consumers and therefore may not have created as strong of an effect as reported in this study.\u00a0 Although these are real limitations, the findings from this study are still quite powerful indicators of word-of-mouth effect. It is a tool managers should not ignore.<\/p>\n

Reference<\/strong>
\nMichael Trusov<\/a>, Randolph E. Bucklin<\/a>, and Koen Pauwels<\/a> (2009), “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site<\/a>,” Journal of Marketing<\/a>, Vol. 73 (September), p.90-102.<\/p>\n","protected":false},"excerpt":{"rendered":"

Some people may disagree with what I am about to say here: online social networks bring people closer to each…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,26,20],"tags":[25,17,49,24],"class_list":["post-71","post","type-post","status-publish","format-standard","hentry","category-internet_marketing","category-research_insight","category-wom","tag-research","tag-roi","tag-viral-marketing","tag-word-of-mouth","post-archive"],"yoast_head":"\nWord-of-Mouth or Traditional Marketing? | Ping! >> Loyalty Science in Practice<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.yupingliu.com\/wordpress\/2009\/09\/13\/word-of-mouth-or-traditional-marketing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Word-of-Mouth or Traditional Marketing? 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