Word-of-mouth in the digital age: introducing “word-of-mouth equity”

Recommendations One of the “marketing techniques” that thrived in the recession year 2009, was word-of-mouth marketing. Word-of-mouth is a natural human phenomenon, word-of-mouth marketing is a set of techniques and strategies to strengthen and induce it.

There is a lot of confusion about the differences between viral marketing, word-of-mouth marketing, buzz marketing, connected marketing and even social media marketing. 

However, as I explained in previous posts, word-of-mouth has always been around, as well as word-of-mouth marketing.

Despite all the online marketing, word-of-mouth is still predominantly an offline matter, although it is increasingly embracing social and digital media.

In 2008 word-of-mouth marketing spend was 1.52 billion USD, for 2013 it is estimated to be 3 billion USD, as you can read here.

Recently, the McKinsey Quarterly published an interesting article (as a matter of fact, it often does), called “A new way to measure word-of-mouth marketing”.  That’s what this post is about.

According to the article, written by McKinsey director Jacques Bughin and principals  Jonathan Doogan, and Ole Jørgen Vetvik, “Assessing the impact as well as the volume of word-of-mouth will help companies take better advantage of buzz”.

I guess that part is obvious but what follows is interesting…

Word-of-mouth: from one-to-one to one-to-many (and many-to-many?)

First, let’s define the term ‘word-of-mouth’: it’s simply people talking to other people where they also talk about products, services, businesses, etc. in a natural and spontaneous way. They have not been asked to do it, nor do they receive any incentive for it, except of course for the gratification of a psychological need, as explained in the post “Why do people talk about products and brands”?

There is a strong link between word-of-mouth, influence and recommendations. 

The main benefits for businesses to “use word-of-mouth” is that word-of-mouth or WOM exists anyway, the fact that word-of-mouth is about peer-to-peer and that peers or influencers are perceived as more reliable and the fact that, using word-of-mouth marketing can shorten your sales cycles.

The McKinsey article confirms most of this. The authors write that “word-of-mouth is the primary factor behind 20 to 50 percent of all purchasing decisions”. That is a lot.

The people at McKinsey underline that, where word-of-mouth was once a matter of more personal one-to-one interaction, the arrival of social media, interactive channels and online communities have given it an important “one-to-many” aspect. We often tend to forget that, but it’s one of the key elements in the rapidly changing digital communication reality. Recommendations, influence and WOM are everywhere and one voice can influence a lot of others by sharing one “story” (for me, word-of-mouth is about stories, as you can read here).

The role of word-of-mouth and recommendations in the customer buying journey

McKinsey identified the role of word-of-mouth in several stages of the buying journey of people (see example below). 

Word of mouth at each stage of the consumer decision journey 

Conclusion (I quote): “While word-of-mouth has different degrees of influence on consumers at each stage of this journey it’s the only factor that ranks among the three biggest consumer influencers at every step”.

You can compare this with the chart from the Fluent report by communication agency Razorfish, I have briefly tackled earlier, and showing the role of influencers in the marketing funnel. 

By the way, if you haven’t downloaded the PDF from this report yet, I strongly recommend you (that’s word-of-mouth) to do it.

Razorfish fluent Role of influencers in the marketing funnel

Ignore word-of-mouth at your own peril!

Clearly  word-of-mouth is becoming more important in all stages of the buying cycle and online media are playing an increasing role. Even if much WOM is still offline, the scale of word-of-mouth on digital and social channels is so much more powerful due to the speed, one-to-many and even many-to-many nature and the increasing adoption of emerging media.

On top of that, businesses simply can never afford to be oblivious to the power of opinions spread by people, a.k.a. consumers.
 
Word-of-mouth confirms the claim of a product. Its credibility lies in the fact that it is an opinion formed and spread by masses. 

The emergence of social media sites like Twitter, Facebook, blogs, etc. have made the dominance of word-of-mouth complete. 

It is now imperative for businesses to remain alive and vigilant about securing positive word-of-mouth from their clients. They should never underestimate the fact that a single tweet or blog comment can boost sales, strengthen branding, bring in new customers and repeat sales. 

The message for entrepreneurs, therefore, is plain and simple. Listen to customer feedback very intently and make improvements based on the recommendations. 

They should never forget the fact that a negative word-of-mouth can hit them hard and might even result into their product as well as reputation being wiped off from the market. 

Indeed, if they want to remain ahead of their competitors then entrepreneurs would do well to be ever alert to word-of-mouth and leave no stone unturned to swing the public opinion in their favor. 

Measuring the impact and value of word-of-mouth

McKinsey divided word-of-mouth in three forms: experiential, consequential, and intentional. I guess you can imagine what they mean. If not, don’t worry, you can read it online yourself.

The most interesting part of the article, however, is what the authors call “word-of-mouth equity”, a way of assessing the different forms of recommendations. 

The “formula”: the average sales impact of a brand message multiplied by the number of word-of-mouth messages.

The model is an answer to the challenges that were identified in research that was published in the Harvard Business Review, and that I wrote about earlier.

Mckinsey effect of word of mouth messages on brand

There is more in the McKinsey Quarterly article. 
I recommend you to go and read it here (just register in case you didn’t yet, it’s free).

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Author: J-P De Clerck

J-P is the founder of i-SCOOP. He's a trusted digital marketing and business consultant with hands-on international experience, proven results and a people-centric view. J-P is active on the crossroads of marketing, management, customer service, publishing, digital technologies, psychology, media and IT since 1992. Follow him on Twitter via @conversionation of or connect on LinkedIn.

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