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Michael Lowenstein, Ph.D., CMC Thought Leadership Principal, Beyond Philosophy

I’m grateful to my colleague, Richard Vanderveer, for making readers of his blog aware of an insightful report – Return on Word of Mouth, or WOM/ROI – recently issued by the Word of Mouth Marketing Association (WOMMA). As a long-time believer in the power of word-of-mouth and brand favorability in b2b and b2c marketing, he  deserves a sincere thank you for bringing this insightful piece of work to everyone’s attention.

The project was sponsored by some big names – AT&T, Pepsico, Weight Watchers, Intuit, Discovery Communications, Ogilvy, etc – and it addressed several of marketing’s most contemporary and important questions:

• How can WOM be measured on a consistent basis?

• How can the business impact, or WOM/ROI, be determined?

• How does WOM/ROI vary by business category?

• What is the optimal role of online and offline WOM marketing?

Study objectives also addressed fundamental issues:

• How much of sales, or other tangible objectives, is driven by WOM?

• How does WOM amplify and cascade marketing initiatives?

• How do offline WOM and online WOM compare?

• What are best approaches for measuring WOM effectiveness?

• How does paid advertising compare to WOM in driving results?

The report chronicles a detailed and extensive data collection and analysis effort (using structured equation modeling), where over two years of results were generated.  Among key findings:

• In categories studied (telecom, personal care, software, TV programming, FMCG), WOM directly drove 13% of sales, compared to 20%-30% of sales from paid marketing

• Two-thirds of WOM business impact is from offline WOM (based on WOM data provided by Keller Fay Group’s Talk Track and online WOM data provided by Converseon). Note:  These findings are consistent with earlier research generated by Nielsen, Keller Fay Group, and the author

• WOM directly and indirectly drives business performance: It propels, and also

• amplifies, offline and online media, as well as search and website visits, which then impact business performance.

• About two-thirds of WOM’s impact is direct, and one-third amplifies paid media (by about 15%)

And, the study found that WOM’s effect on attitudes and behaviors occurs with much greater speed than traditional media:  85% to 95% of online WOM and 65% to 80% of offline WOM impact occurs within the first two weeks. By comparison, only 30% to 60% of TV’s impact occurs over the first two weeks. Another key finding was, rather astoninshingly, that an offline WOM impression drives at least five times more sales than a paid advertising impression.

With respect to WOM measurement guidelines, it is important to understand the volume and sentiment (positive, neutral, negative) of informal consumer communication, utilize multivariate techniques for evaluation (structured equation modeling or discriminant function analysis), and look at the drivers of this behavior.  WOM is at least as important as other inputs to optimize KPIs.

Word of mouth has long been proven to be a significant component of, and contributor to, downstream customer advocacy and brand bonding, which we at Beyond Philosophy believe is a direct outcome of customer experience. Arguably, advocacy is the most current, real-world and actionable method for assessing the downstream impact of customer-supplier interactions (http://customerthink.com/is-there-a-single-most-actionable-contemporary-and-real-world-metric-for-managing-optimizing-and-leveraging-customer-experience-and-behavior/). Now, thanks to WOMMA, marketers can be assured that the brand-related word of mouth which comes from customers has real, positive, and valuable marketing ROI for any of their programs.

Republished with permission from CustomerThink.com