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Word of Mouth – Asset or Liability



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  • 1. BSI Word of Mouth – Asset or Liability Marketing 2.0 Conference, Hamburg 2005
  • 2. BSI Join the conversation MARKETING 2.0 CONFERENCE Paris, France 28/29 March 2011 www.marketing2conference.com
  • 3. Word of Mouth Asset or Liability? Bodo Lang bodo.lang@manukau.ac.nz Manukau Institute of Technology Auckland, New Zealand
  • 4. Contents of Presentation What is Word of Mouth? How important is Word of Mouth? Geography Product category Proportion of consumers engaging in WOM… ….and relying on WOM WOM’s relative strength Is Word of Mouth (WOM) an asset or a liability for your brand? 4 Questions Calculate a WOM asset/liability score Summary & Discussion © Bodo Lang bodo.lang@manukau.ac.nz 2
  • 5. What is Word of Mouth? “Personal or non-personal communication, between a non-commercial communicator and a receiver concerning a brand, a product, or a service offered for sale.” Can entail ‘digital WOM’ (Alon et al. 2002; Bickart and Schindler 2002; Newman 1999; Stokes and Lomax 2002). © Bodo Lang bodo.lang@manukau.ac.nz 3
  • 6. The importance of WOM – Geography WOM is a global phenomenon (Money 2000; Takada and Jain 1991; Watkins and Liu 1996). WOM has been found to be of importance in: Western countries, such as: the UK (Ranaweera and Prabhu 2003; Stokes and Lomax 2002) the US (Brown et al. 2005; Whyte 1954) Canada (Bansal and Voyer 2000) Germany (Wangenheim, 2004) Sweden (Anderson 1998) Asian countries such as: Japan (Money 1995; Money 2000) South Korea (Babin 2005) Singapore (Chew and Wirtz 2001; Wirtz and Chew 2002) Developing nations such as: India (Ennew et al. 2000) the former Soviet Union (Bauer and Gleicher 1953). © Bodo Lang bodo.lang@manukau.ac.nz 4
  • 7. The importance of WOM – Product categories (1) WOM’s applicability appears to be universal WOM’s importance stretches across a multitude of product categories However, certain types of products are more susceptible to WOM than others: Services in general Professional services in particular © Bodo Lang bodo.lang@manukau.ac.nz 5
  • 8. The importance of WOM – Product categories (2) Industry Empirical evidence of WOM’s importance Accounting services (Day et al. 1988; File et al. 1994; Freiden and Goldsmith 1988; Money 1995) Air conditioners (Sundaram and Webster 1999; Whyte 1954) Airlines (Reichheld 2003; Swanson and Kelley 2001) Appliances (Richins 1983) Audio tapes (Bone 1995) Beauty saloons (Harrison-Walker 2001) Books (Schindler and Bickart 2002) Cable TV (Reichheld 2003; Swanson and Kelley 2001; Westbrook 1987) Car dealerships (Brown et al. 2005) Car rental (Reichheld 2003) Car repairs (Engel et al. 1969) Cars (Arndt and May 1981; Gilly et al. 1998; Herr et al. 1991; Price and Feick 1984; Schindler and Bickart 2002; Stuteville 1968; Swan and Oliver 1989; Westbrook 1987) Child care (Bansal and Voyer 2000) Clothing (Richins 1983) Computers (Gilly et al. 1998; Herr et al. 1991; Reichheld 2003) Consumer electronics (Gilly et al. 1998; Price and Feick 1984; Wilson and Peterson 1989) © Bodo Lang bodo.lang@manukau.ac.nz 6
  • 9. The importance of WOM – Product categories (3) Industry Empirical evidence of WOM’s importance Cookies (Bone 1990; Bone 1995) Corporate banking and finance (File and Prince 1992; Money 2000) Credit cards (Ennew et al. 2000; Swanson and Kelley 2001) Current affairs and political (Bauer and Gleicher 1953; Larsen and Hill 1954) news Dentistry (Bansal and Voyer 2000; Barnes 1986; Gremler et al. 2001; Mangold et al. 1987) Electricity (Wangenheim and Bayón 2004) Financial services (Anderson and Golden 1984; Bansal and Voyer 2000; Belk 1971; Ennew et al. 2000; Gilly et al. 1998; Gremler 1999; Gremler et al. 2001; Reichheld 2003; Stern and Gould 1988) Floor wax (Cunningham 1965) Food and beverage (Arndt 1967; Arndt 1967; Arndt 1967; Arndt 1968; Belk 1971; Belk and Ross 1971; Cunningham 1965; Curren and Folkes 1987; Day 1971; Holmes and Lett 1977; TARP 1981) Gas service (Brown and Beltramini 1989) Hair dressing (Bansal and Voyer 2000; Hogan et al. 2004; Maxham 2001) Hotels (Bolfing 1989; Cadotte 1988) Internet service providers (Maxham 2001; Reichheld 2003) © Bodo Lang bodo.lang@manukau.ac.nz 7
  • 10. The importance of WOM – Product categories (4) Industry Empirical evidence of WOM’s importance Legal services (Bansal and Voyer 2000; Crane 1989; Crocker 1986; File et al. 1994; Freiden and Goldsmith 1988; Money 1995; Smith and Meyer 1980; Traylor and Mathias 1983) Medical services (Bansal and Voyer 2000; Crane and Lynch 1988; Duhan et al. 1997; Feldman and Spencer 1965; Glassman and Glassman 1981; Gremler 1999) Medicine (Cunningham 1965) Movies (Bayus et al. 1985; Burzynski and Bayer 1977; Mahajan et al. 1984; Mizerski 1982; Still et al. 1984) Music (Gilly et al. 1998) Navy recruitment (Bayus 1985; Bayus et al. 1985) Not for profit (Cermak et al. 1991) Piano teachers (Brown and Reingen 1987) Piano tuner (Reingen 1987; Reingen and Kernan 1986) Razor blades (Sheth 1971) Restaurant (Bansal and Voyer 2000), (Bone 1992) Retailers (Bolen 1994; Curren and Folkes 1987; Higie et al. 1987) Soap (Belk 1971) © Bodo Lang bodo.lang@manukau.ac.nz 8
  • 11. The importance of WOM – Product categories (5) Industry Empirical evidence of WOM’s importance Telecommunications (Chew and Wirtz 2001; Ranaweera and Prabhu 2003; Reichheld 2003; Wirtz and Chew 2002) Television repair (Bansal and Voyer 2000) Travel agent (Bansal and Voyer 2000) Trust and estate (File et al. 1992) planning services Tutoring services (Bansal and Voyer 2000) Vacation destinations (Gitelson and Crompton 1983) Veterinary services (Bansal and Voyer 2000; Harrison-Walker 2001) Video recorders (Gilly et al. 1998) © Bodo Lang bodo.lang@manukau.ac.nz 9
  • 12. The importance of WOM – Many are talking… Word-of-mouth (WOM) is ever present 90% of Innovators had talked to at least one person a few days after product trial (Engel et al. 1969) More than 80% of diners talked about the food during consumption (Bone 1992) 70% of consumers had engaged in WOM after product consumption (i.e. watching a movie) (Bayus et al. 1985) More than 50% of consumers engage in WOM (Anderson 1998). Those who do talk to an average of: 9.5 people (Sweden) and 7.9 people (US) © Bodo Lang bodo.lang@manukau.ac.nz 10
  • 13. The importance of WOM – … and many are listening Generally, between 9% and 75% rely on WOM (Barnes 1986; East et al. 2005) The proportion of consumers who rely on WOM as the main source of information can vary from 9% to 65% (East et al. 2005) Approximately 50% of all Americans rely on WOM prior to buying a product or a service (Walker 1995) Around 60% of consumers who had tried an automotive diagnostic centre named WOM as the most influential source in making this decision (Engel et al. 1969; Engel et al. 1969) Around 65% of residents in a community relied on WOM to find a physician (Feldman and Spencer 1965) 75% of patients chose a dentist through WOM (Barnes 1986) © Bodo Lang bodo.lang@manukau.ac.nz 11
  • 14. The importance of WOM – Its relative strength WOM is more powerful than: Print or television advertising (Beal and Rogers 1957; Buttle 1998; East et al. 2005; Hinde 1999; Katz and Lazarsfeld 1955; Traylor and Mathias 1983) Independent third-party reviews (e.g. Consumer reports or published restaurant reviews) (Herr et al. 1991; Hinde 1999; Price and Feick 1984) Consumers’ own attitudes (Bourne 1957). WOM has also been found to be a more dominant source of information than a consumer’s own information search, sales staff and other factors (East et al. 2005) © Bodo Lang bodo.lang@manukau.ac.nz 12
  • 15. WOM – Asset or Liability? WOM can range from highly positive to highly negative (Bolen 1994; Derbaix and Vanhamme 2003; Donavan et al. 1999; Mangold et al. 1999) This is a KEY difference between WOM and other marketing channels. Positive WOM seems prevalent in both traditional WOM (Bayus et al. 1985; East et al. 2005) and digital WOM (Dellarocas 2003) Relative impact of positive and negative WOM has been found to be quite similar (East et al. 2005) © Bodo Lang bodo.lang@manukau.ac.nz 13
  • 16. WOM – Asset or Liability? (2) Some negative WOM may be inevitable So how much risk is your brand exposed to? “Different conditions may be associated with the utterance of negative and positive word of mouth.” (Buttle, 1998, p. 248) The following is a pragmatic approach to determine whether your brand has: a lot to gain (i.e. WOM may be an asset) or a lot to lose (i.e. WOM may be a liability) Answering four questions may yield the answer Develop a WOM asset/liability score © Bodo Lang bodo.lang@manukau.ac.nz 14
  • 17. WOM – Asset or Liability? – Q1 Customer satisfaction How satisfied are your customers? Dissatisfied Satisfied Highly satisfied -1 0 +1 Customer satisfaction is said to have a non-linear relationship with WOM (Anderson 1998; Bowman and Narayandas 2001; Derbaix and Vanhamme 2003; Engel et al. 1969; Soderlund 1998) My research shows that “Very satisfied” retail bank customers are more than 6 times more likely to recommend their bank to someone else, compared to customers who are simply “Satisfied” (82% versus 13%) Thus, high levels of customer satisfaction are likely to lead to a much lower propensity to share negative WOM and a much greater propensity to share positive WOM © Bodo Lang bodo.lang@manukau.ac.nz 15
  • 18. WOM – Asset or Liability? – Q2 Customer co-production How involved are your customers in product design/delivery? Not at all Somewhat Highly -1 0 +1 Customers who engage in the co-production of a service have a desire to portray ‘their’ organisation as positively as possible (Brown et al. 2005; Gilly and Wolfinbarger 1998). Such customers may “talk up” a company as a defense mechanism (Brown et al. 2005) Thus, high levels of co-production are likely to lead to a lower propensity to share negative WOM and a greater propensity to share positive WOM © Bodo Lang bodo.lang@manukau.ac.nz 16
  • 19. WOM – Asset or Liability? – Q3 Industry concentration How many competitors can your customers chose from? None/Very few Some Many -1 0 +1 The level of industry concentration in an industry (e.g. many suppliers versus only one supplier) is inversely related to voice behaviour (Fornell and Didow 1980; Singh 1990). Thus, low levels of industry concentration (i.e. many competitors) are likely to lead to a lower propensity to share negative WOM and a greater propensity to share positive WOM © Bodo Lang bodo.lang@manukau.ac.nz 17
  • 20. WOM – Asset or Liability? – Q4 Self-relatedness How much is your brand related to your customers ‘self’? Not at all Somewhat Very much -1 0 +1 Brands that are more self-related to consumers self-concept foster higher levels of WOM in general and greater positive WOM in particular (Chung 2000) Thus, high levels of self-relatedness are likely to lead to a lower propensity to share negative WOM and a greater propensity to share positive WOM © Bodo Lang bodo.lang@manukau.ac.nz 18
  • 21. How exposed are you to WOM? Answering the 4 questions: -1 0 +1 1. Customer satisfaction Dissatisfied Satisfied Very satisfied 2. Co-production Not at all Somewhat Very much 3. Number of suppliers None/Very few Some Many 4. Self-relatedness Not at all Somewhat Very much Calculate your total WOM asset/liability score by adding the individual scores of each question Total WOM asset/liability scores can range from -4 to +4 Total WOM asset/liability scores indicate whether WOM can be seen as an asset or a liability to your brand © Bodo Lang bodo.lang@manukau.ac.nz 19
  • 22. What does the WOM asset/liability score mean? -4 -3 to -2 -1 to +1 +2 to +3 +4 Cemetery Dangerzone No-Man's-Land Zone of High Street WOM is a clear WOM is a WOM is neither Comfort WOM is a clear liability! moderate an asset nor a WOM is a asset! liability liability moderate asset Improve to survive. Urgent focus on improving customer satisfaction, implementing product/service quality management Level of WOM systems, involving customers in the design and ‘delivery’ process, etc. Ride the crest of the WOM wave. Maintain current product/service standards, while actively encouraging customers – and non customers – to engage in WOM through Guerilla Marketing, Viral marketing, etc. Continue to surprise your customers. Total WOM score © Bodo Lang bodo.lang@manukau.ac.nz 20
  • 23. Summary & Discussion (1) WOM is VERY important WOM is “[…] capable of catapulting products from obscurity into runaway commercial successes” (Dye 2000, p.139). Acclaimed business writers have suggested that WOM is the only marketing outcome variable that managers should be concerned about (Reichheld 2003) While harnessing the power of positive WOM is a pleasing thought, - don’t forget about preventing/managing negative WOM By answering 4 questions we have seen how WOM can either be an asset or a liability for a brand Customer satisfaction Level of co-production Number of suppliers Self-relatedness Total WOM asset/liability score Ranges from -4 to +4 © Bodo Lang bodo.lang@manukau.ac.nz 21
  • 24. Summary & Discussion (2) Brands that have a high WOM asset/liability score, will reap huge benefits. Such brands should endeavour to capitalise on WOM through innovative use of marketing techniques, e.g. viral marketing, guerrilla marketing, etc. Conversely, brands with a low WOM asset/liability score are in serious danger of going out of business. While not all brands may care about this, for example utility monopolies, negative WOM may also alert other firms of vulnerable take-over targets. Furthermore, such brands may also need to spend significantly more on other marketing communication to combat the detrimental effects of WOM. Thus, a low WOM asset/liability score has a number of disadvantages Your brand’s WOM asset/liability score works at two levels: absolute and relative to the competition. The latter is more insightful in most cases © Bodo Lang bodo.lang@manukau.ac.nz 22
  • 25. Questions and Comments?
  • 26. Selected References* Anderson, Eugene W. (1998), "Customer Satisfaction and Word of Mouth," Journal of Service Research, 1 (1), 5-17. Anderson, Eugene W and Vikas Mittal (2000), "Strengthening the satisfaction-profit chain," Journal of Service Research, 3 (2), 107-120. Bone, Paula Fitzgerald (1992), "Determinants of Word-of-Mouth Communications During Product Consumption," in Advances in Consumer Research, John F.; Sternthal Sherry, Brian (Ed.) Vol. 19. Provo, UT: Association for Consumer Research. Buttle, Francis A. (1998), "Word of Mouth: Understanding and Managing Referral Marketing," Journal of Strategic Marketing, 6, 241-54. Dichter, Ernest (1966), "How Word-of-Mouth Advertising Works," Harvard Business Review, 44 (November/December), 147-66. Dye, Renee (2000), "The Buzz on Buzz," Harvard Business Review (November-December), 139-46. Engel, James F., Robert J. Kegerreis, and Roger D. Blackwell (1969), "Word-of-Mouth Communication by the Innovator," Journal of Marketing, 33 (July), 15-19. Harmon, L.C. and K.M. McKenna-Harmon (1994), "The hidden costs of resident satisfaction," Journal of Property Management, 59 (3), 52-55. Hart, Chistopher W.L., L. Heskett, and Jr. Sasser, W. Earl (1990), "The Profitable Art of Service Recovery.," Harvard Business Review, 68 (4), 148-56. Herr, Paul M., Frank Kardes, R., and John Kim (1991), "Effects of Word-of-Mouth and Product-Attribute Information on Persuasion: An Accessibility-Diagnosticity Perspective," Journal of Consumer Research, 17 (March), 454-62. Holmes, John H. and John D. Lett (1977), "Product Sampling and Word of Mouth," Journal of Advertising Research, 17 (October), 35-40. Katz, Elihu and Paul F. Lazarsfeld (1955), Personal Influence. New York: The Free Press. Price, Linda L., Eric J. Arnould, and Patrick Tierney (1995), "Going to extremes: Managing service encounters and assessing provider performance," Journal of Marketing, 59 (April), 83-97. Sedikides, Constantine, W. Campbell, Glenn D. Reeder, and Andrew J. Elliot (1998), "The self-serving bias in relational context," Journal of Personality & Social Psychology, 74 (2), 378-86. Soderlund, Magnus (1998), "Customer Satisfaction and its Consequences on Customer Behaviour Revisited," International Journal of Service Industry Management, 9 (2), 169-88. TARP (1981), "Measuring the Grapevine: Consumer Response and Word-of-Mouth." Atlanta, GA: Coca-Cola. Reichheld, Frederick F (2003), "The One Number you Need to Grow," Harvard Business Review (December), 46-54. * = A complete reference list can be obtained from the author © Bodo Lang bodo.lang@manukau.ac.nz 24
  • 27. The Author Bodo Lang is a senior lecturer at the Manukau Institute of Technology, Auckland, New Zealand. Bodo’s career is a blend of the commercial and academic sectors. His commercial career commenced in Germany in advertising. He then worked as a management consultant for a global consultancy in New Zealand. Bodo has also worked at Director-level for a global market research company in Singapore. Bodo continues to work as an independent consultant in marketing. Bodo has also worked as an academic for a number of years. His research has been published in the Journal of Advertising, the Journal of Business Research, the International Journal of Bank Marketing and Advances in Consumer Research. He has also presented his work at a number of international conferences around the world. Bodo Lang Email: bodo.lang@manukau.ac.nz Phone: ++64-9-968 8000 © Bodo Lang bodo.lang@manukau.ac.nz 25