Word-of-Mouth Is Powerful Marketing

July 29, 2010

Word-of-mouth recommendations are the primary factors behind 20% to 50% of all consumer purchasing decisions, according to McKinsey Quarterly.

The influence of word of mouth is greatest when consumers are buying a product for the first time or when products are relatively expensive—factors that tend to make people conduct more research, seek more opinions, and deliberate longer than they otherwise would. Expect its influence to grow as the digital revolution transforms one-to-one communication to one-to-many, where consumers post product reviews online and social networks spread consumer opinions to thousands in seconds.

Understand three forms of word of mouth, the researchers point out:

  1. Experiential is the most common and powerful form. It typically accounts for 50% to 80% of any word-of-mouth activity. It results from a consumer's direct experience with a product or service, largely when that experience deviates from what's expected.
  2. Consequential occurs when consumers directly exposed to traditional marketing campaigns pass on messages about them or brands they publicize. The impact of those messages on consumers often is stronger than the direct effect of advertisements, because marketing campaigns that trigger positive word of mouth have comparatively higher campaign reach and influence.
  3.  Intentional occurs when marketers use celebrity endorsements to trigger positive buzz for product launches. Few companies invest in generating intentional word of mouth, partly because its effects are difficult to measure and because many marketers are unsure if they can successfully execute intentional word-of-mouth campaigns.

How can you harness the potential of word of mouth and realize higher returns on your investments? Follow these tips:

  • Learn to assess different types of recommendations. This helps you calculate what McKinsey researchers call "word-of-mouth equity." It represents the average sales impact of a brand message multiplied by the number of word-of-mouth messages. Critical drivers of success are recommendations from influential resources passed along tight, trusted networks. Influentials typically generate three times more word-of-mouth messages than noninfluentials do, and each message has four times more impact on a recipient's purchasing decision, McKinsey notes.
  • Understand which dimensions of word-of-mouth equity are most important to a product category: the who, the what, or the where. For instance, in retail financial services, it's the who. Then work on generating positive word of mouth, using the forms identified above.
  • Create buzz. Consumers' experiences must not only deviate significantly from expectations but also deviate on the dimensions that matter most to them and that they will likely talk about. For example, battery life is a crucial driver of satisfaction for mobile-handset consumer, but they talk about it less than the product's design and usability.