Tag: word-of-mouth

Word-of-Mouth or Traditional Marketing?

Posted on

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.  But what does this mean for marketing?  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.

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

Word of Mouth

What did they look at?
The impact of word-of-mouth, event marketing, and media appearance on the sign-ups for an undisclosed online social network.

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

Some not-so-intuitive and very important findings:
The 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.  In the long run, the effect of word-of-mouth is 20 times that of event marketing and 30 times that of media appearance.  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.

What does this mean for marketing practice?
Word-of-mouth is a powerful tool for customer acquisition.  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.

Cautions
Readers should be cautioned from taking the results from the above research too literally.  Two things should especially be taken into consideration.  First, the data came from an online social network.  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.  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.  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.  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.

Reference
Michael Trusov, Randolph E. Bucklin, and Koen Pauwels (2009), “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site,” Journal of Marketing, Vol. 73 (September), p.90-102.

Are You Targeting the Right People to Grow Your Community?

Posted on

Last time I discussed a few research findings on what makes people pass on information to others.  This week, I would like to follow up on the topic and talk about a recent project done by Zsolt Katona (@UC Berkley) and his colleagues.  The research question Katona and colleagues set out to answer is what drives the growth of an online community. They surmised that the specific social network structure of the initial adopters affect the adoption likelihood of subsequent followers. To test their thinking, the researchers analyzed the first 3.5 years of data from a central-European social networking website, when no marketing activities had been engaged to promote the site and the network had been growing organically through word-of-mouth.  Here is the gist of what they found.

People do tend to follow the crowd but a more closely-knit crowd carries much more power

We all have hesitations when it comes to novel new things and may consider them risky. Depending on how risk averse we are, we may wait until some or a majority of other people have adopted the new thing before we jump onto the wagon. In my own research project documented in the last blog, we found the median adoption threshold to be 50%, incidentally supporting the “majority rules” mentality. But the threshold reported by our sample ranged across the whole spectrum from 0% to 100%. Consistent with this idea of an adoption threshold, Katona and colleagues found that more people in one’s social circle adopting a social network makes one more likely to join the network. In this context, perhaps an additional driver besides risk is the fact that the utility of a network increases when more of one’s friends belong to it. The story does not stop here, however. The researchers also found that a closely-knit (or high-density in network science terminology) network where everyone knows everyone else is much more influential. If the same number of individuals in a closely-knit network joins a social network, the remaining non-adopters are much more likely to follow suit than if it were a loose (low density) network of sorts.

Network

Social butterflies are not the most influential

In network science, the fact that some individuals have way more friends/connections than most others in the same network has often been compared to the rich get richer phenomenon.  But unlike the richer people who do have solid cash to spend, social butterflies who have tons of friends (think 1000+ or even 500+ Facebook friends) are actually quite weak when it comes to influencing other people’s opinions. Well, at least when it comes to the decision to join a social network any way. This may be surprising on first look. But not so when one thinks deeper about human psychology. We all have limited energy to build and maintain friendships. The more friends we accumulate on a regular basis, the less energy we have to develop a deep and meaningful relationship with each individual, and thus the less we are able to exert a strong influence.

Weak ties may be good for information travel but exert limited influence

The strength of the weak tie has been a well-known phenomenon for more than 20 years, referring to the fact that weak ties that link disconnected networks are critical to the spreading of information. However, for exactly the same reason, the central role played by these weak ties also makes a network formed around such ties more vulnerable.  Referring to these individuals as structural holes, Katona and colleagues found that the adoption of a social network by these structural holes has less of an impact on their friends, perhaps accurately reflecting the fact that these are “weak” ties.

Lessons learned

  • Many factors create counter effects when it comes to increasing awareness of a community vs. increasing participation in a community.
  • While sometimes it may be necessary to target loosely-knit networks (more weak ties) for increasing the awareness of your online community, closely knit networks are eventually critical to increasing actual participation in your community.
  • The same thing goes with highly-connected individuals. While those who have lots of friends may be good for getting the word out, individuals who have a more moderate friend circle may be more ideal for building the community.
  • For a business, how these counter effects should balance out will depend on the exact goal for the online community at each stage.

Reference

Zsolt Katona, Peter Pal Zubcsek, and Miklos Sarvary (2009), “Network Effects and Personal Influences: Diffusion of an Online Social Network“. The full paper can be downloaded from Katona’s website at http://www.cs.bme.hu/~zskatona/pdf/diff.pdf

What Makes People Pass Along Your Content?

Posted on

If you are involved in social media or viral marketing, most likely you have wondered how to increase the passing-along of your viral content. My co-author Michelle Rogerson and I have been wondering about the same question too in our research project on the spreading of user-generated content online. As the starting point, we conducted an exploratory survey to find out people’s general tendency to share information online and what makes them more or less likely to share information with others. Using snowballing technique, we were able to gather responses from 156 Internet users.  These users’ ages ranged from 18 to 62 with a median age of 30.  46% of these users were males and 54% were females. Here I share with you some key findings from the survey.

“If my friend shares something with me, I will view it. But don’t really expect me to pass it on.”

We asked our respondents how likely they are to view information shared by someone they know, and over 60% of them agreed that it is quite likely (7 or higher on a 10-point scale).  This is good news because in the case of viral campaigns, encouraging people to share information with their friends is likely to increase the reach of the campaign. The bad news we found, however, is that way fewer of them would further pass on the information to their respective friends.  Less than 20% of them said they are likely to pass on information shared with them by their friends.  Interestingly, when asked the same question about information consumers found online themselves rather than shared by their friends, those who selected likely to pass on information increased to about 30%.  The lesson here is that first-order word-of-mouth (consumers passing on information they found themselves) is more likely to happen than second-order word-of-mouth (consumers passing on information that are found by their friends). Therefore, companies engaging in word-of-mouth campaigns should still try to spread the word to as many “seeds” as possible rather than counting on a few starting points.

Click and Pass on
Share self-discovery

“Make me believe that the information is relevant to my friends and I will pass it on.”

The survey contained an open-ended question asking the respondents to list the factors that would make them more likely to share information online.  The dominant reason listed (by 35% of the sample) was relevance to the friends that they are passing the information on to.  This is perhaps not surprising considering that few of us want to jam our friends’ inbox with junk information.  For companies, this means an opportunity to encourage passing-along by demonstrating the content’s relevance to a consumer’s social circle.  Financial incentives offered to friends by some referral programs is an example of this approach. The second most widely listed reason was something funny.  Apparently, we as human beings like to share laughter with others.  Below are the top five reasons the respondents cited ranked by frequency:

    1. Relevance to those sharing information with
    2. Humor
    3. Relevance to oneself
    4. Importance/worthiness of information
    5. Unusual/unique information


    Opinion leaders share more information but are also more likely to seek advice.Studying information sharing is not complete without considering opinion leaders, those individuals that are on the cutting edge and are likely to influence other people’s opinions.  We found that being an opinion leader increases the likelihood to share information with others by 38%, perhaps partially explaining why these people are opinion leaders in the first place.  While this finding seems rather obvious, what is not so obvious is the finding that opinion leaders are also more likely to seek advice from others such as family, friends, and neighbors. Compared with regular individuals, opinion leaders are 25% more likely to seek advice from others. This finding is important because we have often seen the argument that the right way to treat social media is to be social (in other words, interacting with others).  Our study finds concrete support for that.  A true opinion leader does not just broadcast information to others but also listens closely and actively seeks out others’ feedback.

    As we move forward to the next stage of the research project, we would love to hear your thoughts.  What makes you more likely to share stuff with other people?  As a company, how do you manage your viral campaign content and seeding process so that it can create the maximum ripple effect?