Everyone knows what word of mouth means (WOM) – it means a positive or negative recommendation about a product by another user, a friend, a trusted resource, or a stranger. Observational learning (OL) is another phenomenon that influences our buying behavior and relates to observing others use a product or service. Observational learning works on us because we are a herding species that tend to copy others. So if you have a lot of information about a restaurant and you go there, only to find a line at another restaurant across the street, you are likely to go stand in that line and use the observation of others preferring that place instead of your own data.
This new research, Online Social Interactions: A Natural Experiment of Word of Mouth Versus Observational Learning, published in the April 2011 Journal of Marketing Research, has some interesting findings and quotes, including:
- 71% of US adults who purchase online use consumer product reviews for their purchases (according to a recent Wall Street Journal Survey)
- Negative WOM information is more diagnostic, and researchers have found it to have a greater impact on consumers’ adoption decisions than positive WOM information
- Both WOM and OL have a larger impact on buying decisions early on in a product lifecycle
- There is an asymmetrical impact of OL on sales – meaning that a lot of OL will drive a lot of sales while a lack of OL for niche products does not hurt sales of those niche products – so while negative WOM is more influential than positive WOM, positive OL is more influential than negative OL
- The amount of WOM strengthens the impact of OL information (i.e., they are complementary)
So what does that mean for your business? Try to encourage as much WOM as you can and if you can show potential buyers OL from others, do it in conjunction with your WOM efforts.