Word of Mouth is very valuable – as long as you do not pay for it
There has been a lot of research on the value of acquiring a customer though Word of Mouth versus Traditional Marketing. One recent project, which was published in the Journal of Marketing this past September, found that the long term elasticity (defined as the percentage of change in new customer acquisition to the percentage of change in the corresponding marketing driver) for Word of Mouth is 20 times higher than the elasticity for for events and 30 times higher than the elasticity for media appearances. Another study, this one from last year, found that the lifetime value of a customer acquired through word of mouth can be twice that of the lifetime value of a customer acquired through traditional marketing. And they can bring in twice the amount of additional business through their own positive word of mouth compared to those who were acquired through traditional marketing programs.
There is no question that customers who are acquired through word of mouth will be buzzing more and longer than those who are acquired through traditional marketing means. Some companies are actually able to quantify the value of a word of mouth referral. Unfortunatelly, the knee-jerk reaction of many marketers who quantify that referral value is to use it to calculate the financial incentive that they are willing to pay to stimulate word of mouth referrals.
That is where the system breaks down.
If you give me a pure financial incentive to make a referral, I will evaluate whether it’s worth spending some of my social capital for the amount of money that you are giving me (and chances are it won’t). As Dan Ariely calls it, I will evaluate the referral transaction in my market framework. If you do not give me any financial incentive, I will evaluate making a referral in my social framework (e.g., I am actually helping the person who I am referring this product or service to? Or I am helping the company person who was helpful with me in dealing with my problem by bringing her more business?). While there is no research data that I am aware of to back this up, I believe that the financial incentive-based word of mouth will look a lot like traditional marketing-based customer acquisition programs – resulting in a lot less buzzing and lower customer lifetime value.
Now what if you were putting incentives in place that were social in nature rather than financial. Don’t give me an incentive that would trigger the evaluation of what I do in a market framework, but allow me to give a valuable gift to the person who I am referring to you. If I like your offering and you increase the value that I deliver to my friends or colleagues by referring them to you, then you have a winner.
The key to success is not by commercializing the social – it’s by making the social stronger.
What do you think?
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December 16th, 2009 at 6:31 pm
[...] This post was mentioned on Twitter by francois gossieaux, Darrin Johnson. Darrin Johnson said: RT @fgossieaux: New blog post: Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4SutFB [...]
December 16th, 2009 at 9:06 pm
Social comments and analytics for this post…
This post was mentioned on Twitter by fgossieaux: New blog post: Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4SutFB…
December 16th, 2009 at 9:24 pm
“The key to success is not by commercializing the social – it’s by making the social stronger.”
This is my instinct, too.
People in social networks do connect with companies in order to receive deals and special promotions, but I think there definitely needs to be an awareness to the psychology that fuels this kind of connection. Does the deal or promotion feel like a gift or a financial incentive. Curiously enough we have a word for “financial incentive” — bribery — which, is not a very nice word.
I’m especially skeptical of the sort of “retweet to win” contests we see all over Twitter recently. The connection is so thin and can often put a person’s social capital at risk, however, these are the ideas that are often attempted first as companies wade their way into social media. Although, I suppose not every connection should require depth. Sometimes a short-term buzz could be beneficial, but I’m with you in the sense that benefits that arise from social connection and reciprocation are much more powerful in the longterm.
I’m so glad I nudged you on Twitter into writing this. It’s always good to pick your brain
December 17th, 2009 at 4:27 am
Great thinking.
I think word of mouth is something you “have to pay for” but the difference with traditional media is that you’re not paying a media investment. You need to invest time (and this means money, too) to find out the best way to build engagement.
So, social media is nothing you have to buy, but it’s something you definitely need have to pay for (or invest in).
It’s not free.
December 18th, 2009 at 7:20 am
Great post. Just the other day I received a generic direct mail from my subscription TV provider encouraging me to sign up four friends to the service. I’ve received these before from this company as well as banks, utilities, mobile phone companies and more.
I don’t think I’ve ever used one. Why? Because it seems incredibly complicated – what am I meant to do? Go give a sales pitch to a friend telling them to sign up for service X so that we can both get $20 off our next bill? No thanks, couldn’t be bothered.
Also, another problem I have with this type of marketing is that the systems are inevitably quite complex. It can be very difficult to track things with either the referer or referree required to enter/mention my name or some sort of code at time of registration.
I agree with your argument – marketers must focus on making the product compelling, valuable, easy to understand and explain and people will take it upon themselves to talk about it.
@paulalexgray
December 18th, 2009 at 7:34 am
I recall that part of Predictably Irrational that discusses how framing a request can influence behavior. If the request to tell friends is framed with self interest, I don’t think people will be as likely to share and the recommendation may seem less trustworthy if the self interest is revealed.
January 14th, 2010 at 4:23 pm
Really enjoyed meeting you at the IERG meeting in Boston. I listened to your MENG presentation today — it was great. Communities and word of mouth marketing was the focus. This article touches a bit on what you said. Your presentation was even more engaging. Can’t wait to read your upcoming book!
March 27th, 2010 at 7:21 pm
[...] (WOM) activity the company is trying to foster. Since customers who are acquired through WOM are much more profitable than those acquired by traditional marketing programs, companies should make that a high priority. [...]
March 27th, 2010 at 7:23 pm
[...] (WOM) activity the company is trying to foster. Since customers who are acquired through WOM are much more profitable than those acquired by traditional marketing programs, companies should make that a high priority. [...]
December 16th, 2009 at 6:28 pm
New blog post: Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4SutFB
This comment was originally posted on Twitter
December 16th, 2009 at 6:31 pm
RT @fgossieaux: New blog post: Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4SutFB
This comment was originally posted on Twitter
December 16th, 2009 at 6:31 pm
RT @fgossieaux New blog post: Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4SutFB
This comment was originally posted on Twitter
December 16th, 2009 at 6:35 pm
RT @fgossieaux Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/6ktPf8
This comment was originally posted on Twitter
December 16th, 2009 at 6:41 pm
RT @fgossieaux: New blog post: Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4SutFB
This comment was originally posted on Twitter
December 16th, 2009 at 9:00 pm
Word of Mouth is very valuable – as long as you do not pay for it:
There has been a lot of research on the… http://bit.ly/7EWsPW
This comment was originally posted on Twitter
December 16th, 2009 at 10:31 pm
Word of mouth works much better when you don’t pay for it: http://bit.ly/4SutFB by @fgossieaux
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December 16th, 2009 at 10:34 pm
RT @fgossieaux Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/6ktPf8 interesting post.
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December 16th, 2009 at 10:36 pm
Reading @fgossieaux Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/6ktPf8
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December 16th, 2009 at 10:45 pm
@ShannonPaul – thanks for the RT and the thoughtful comment on my blog post…http://bit.ly/4SutFB …I will respond early tomorrow
This comment was originally posted on Twitter
December 16th, 2009 at 11:44 pm
RT @ShannonPaul: Word of mouth works much better when you don’t pay for it: http://bit.ly/4SutFB by @fgossieaux
This comment was originally posted on Twitter
December 17th, 2009 at 12:40 am
RT @fgossieaux Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/6ktPf8
This comment was originally posted on Twitter
December 17th, 2009 at 3:03 am
RT @ShannonPaul Word of mouth works much better when you don’t pay for it: http://bit.ly/4SutFB by @fgossieaux
This comment was originally posted on Twitter
December 17th, 2009 at 7:01 am
RT @ShannonPaul: Word of mouth works better when you don’t pay for it: http://bit.ly/4SutFB
This comment was originally posted on Twitter
December 17th, 2009 at 8:25 am
Word of Mouth is very valuable – as long as you do not pay for it http://ow.ly/MTnI
This comment was originally posted on Twitter
December 17th, 2009 at 8:27 am
Word of Mouth is very valuable – as long as you do not pay for it http://j.mp/8Mf3yn
This comment was originally posted on Twitter
December 17th, 2009 at 8:30 am
True as it is organic, RT @ConversationAge Word of Mouth is very valuable – as long as you do not pay for it http://ow.ly/MTnI
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December 17th, 2009 at 5:04 pm
Word of mouth works much better when you don’t pay for it: http://bit.ly/4SutFB by @fgossieaux via @shannonpaul
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December 17th, 2009 at 5:59 pm
RT @_Antonella_: Word of mouth works much better when you don’t pay for it: http://bit.ly/4SutFB by @fgossieaux via @shannonpaul
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December 17th, 2009 at 7:11 pm
Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/6qagrY
This comment was originally posted on Twitter
December 18th, 2009 at 11:26 am
Less member-get-member campaigns please RT @ConversationAge Word of Mouth is very valuable as long as you don’t pay for it http://ow.ly/MTnI
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December 18th, 2009 at 4:41 pm
The strength of organic WOM: RT @fgossieaux Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/4n6R3C
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December 20th, 2009 at 2:10 pm
word of mouth is valuable as long as u dont pay 4 it… http://ow.ly/NQBg
This comment was originally posted on Twitter
December 21st, 2009 at 9:21 am
Word of Mouth is very valuable – as long as you do not pay for it http://bit.ly/72zd8l
This comment was originally posted on Twitter
December 22nd, 2009 at 6:59 am
Word of Mouth is very valuable – as long as you do not pay for it! http://bit.ly/4SutFB
This comment was originally posted on Twitter
December 22nd, 2009 at 1:42 pm
Word of Mouth is very valuable – as long as you do not pay for it http://ow.ly/OvMz
This comment was originally posted on Twitter
December 23rd, 2009 at 6:04 am
what do you think about it? http://ow.ly/MTnI interesting article analisys of word of mouth
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January 1st, 2010 at 8:56 pm
Word of Mouth is very valuable ? as long as you do not pay for it: http://bit.ly/6zTr7S via @addthis
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January 2nd, 2010 at 8:21 pm
Customers acquired through WOM can B 2X that of the lifetime value of a customer acquired through traditional marketing http://bit.ly/8akSNy
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January 5th, 2010 at 12:57 pm
Word of Mouth is very valuable – as long as you do not pay for it: There has been a lot of research on the value of acq http://url4.eu/13m9W
This comment was originally posted on Twitter