Consumers have always valued opinions expressed directly to them. Marketers may spend millions of rands on elaborately conceived advertising campaigns, yet often what really makes up a consumer’s mind is not only simple but also free: a word-of-mouth recommendation from a trusted source. As consumers overwhelmed by product choices tune out the ever-growing barrage of traditional marketing, word-of-mouth cuts through the noise quickly and effectively.
Indeed, word-of-mouth is the primary factor behind 20% to 50% of all purchasing decisions. Its influence 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. And its influence will probably grow: the digital revolution has amplified and accelerated its reach to the point where word-of-mouth is no longer an act of intimate, one-on-one communication. Today, it also operates on a one-to-many basis: product reviews are posted online and opinions disseminated through social networks. Some customers even create websites or blogs to praise or punish brands.
As online communities increase in size, number, and character, marketers have come to recognise word-of-mouth’s growing importance. But measuring and managing it is far from easy. We believe that word-of-mouth can be dissected to understand exactly what makes it effective and that its impact can be measured using what we call ‘word-of-mouth equity’ – an index of a brand’s power to generate messages that influence the consumer’s decision to purchase. Understanding how and why messages work allows marketers to craft a coordinated, consistent response that reaches the right people with the right content in the right setting. That generates an exponentially greater impact on the products consumers recommend, buy, and become loyal to.
A consumer-driven world
The sheer volume of information available today has dramatically altered the balance of power between companies and consumers. As consumers have become overloaded, they have become increasingly sceptical about traditional company-driven advertising and marketing and increasingly prefer to make purchasing decisions largely independent of what companies tell them about products. This tectonic power shift toward consumers reflects the way people now make purchasing decisions.
Once consumers make a decision to buy a product, they start with an initial consideration set of brands formed through product experience, recommendations, or awareness-building marketing. Those brands, and others, are actively evaluated as consumers gather product information from a variety of sources and decide which brand to purchase. Their post-sales experience then informs their next purchasing decision. While word-of-mouth has different degrees of influence on consumers at each stage of this journey (Figure 1), it’s the only factor that ranks among the three biggest consumer influencers at every step. It’s also the most disruptive factor.
Word-of-mouth can prompt a consumer to consider a brand or product in a way that incremental advertising spending simply cannot. It’s also not a one-hit wonder. The right messages resonate and expand within interested networks, affecting brand perceptions, purchase rates and market share. The rise of online communities and communication has dramatically increased the potential for significant and far-reaching momentum effects. In the mobile phone market, for example, we have observed that the pass-on rates for key positive and negative messages can increase a company’s market share by as much as 10% or reduce it by 20% over a two-year period, all other things being equal. This effect alone makes a case for more systematically investigating and managing word-of-mouth.
While word-of-mouth is undeniably complex and has a multitude of potential origins and motivations, we have identified three forms of word-of-mouth that marketers should understand: experiential, consequential, and intentional.
Experiential word-of-mouth is the most common and powerful form, typically accounting for 50% to 80% of word-of-mouth activity in any given product category. It results from a consumer’s direct experience with a product or service, largely when that experience deviates from what’s expected. (Consumers rarely complain about or praise a company when they receive what they expect.) Complaints when airlines lose luggage are a classic example of experiential word-of-mouth, which adversely affects brand sentiment and, ultimately, equity, reducing both receptiveness to traditional marketing and the effect of positive word-of-mouth from other sources. Positive word-of-mouth, on the other hand, can generate a tailwind for a product or service.
Marketing activities can also trigger word-of-mouth. The most common is what we call consequential word-of-mouth, which occurs when consumers directly exposed to traditional marketing campaigns pass on messages about them or brands they publicise. The impact of those messages on consumers is often stronger than the direct effect of advertisements, because marketing campaigns that trigger positive word-of-mouth have comparatively higher campaign reach and influence. Marketers need to consider both the direct and the pass-on effects of word-of-mouth when determining the message and media mix that maximises the return on their investments.
A less common form of word-of-mouth is intentional – for example, 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. What marketers need for all three forms of word-of-mouth is a way to understand and measure its impact and financial ramifications, both good and bad.
A starting point has been to count the number of recommendations and dissuasions for a given product. There’s an appealing power and simplicity to this approach, but also a challenge: it’s difficult for marketers to account for variability in the power of different kinds of word-of-mouth messages. After all, a consumer is significantly more likely to buy a product as a result of a recommendation made by a family member than by a stranger. These two kinds of recommendations constitute a single message, yet the difference in their impact on the receiver’s behaviour is immense. In fact, our research shows that a high-impact recommendation – from a trusted friend conveying a relevant message, for example – is up to 50 times more likely to trigger a purchase than is a low-impact recommendation.
To assess the impact of these different kinds of recommendations, we developed a way to calculate what we call word-of-mouth equity. It represents the average sales impact of a brand message multiplied by the number of word-of-mouth messages. By looking at the impact – as well as the volume – of these messages, this metric lets a marketer accurately test their effect on sales and market share for brands, individual campaigns, and companies as a whole (Figure 2). That impact – in other words, the ability of any one word-of-mouth recommendation or dissuasion to change behaviour – reflects what is said, who says it, and where it is said. It also varies by product category.
- What’s said is the primary driver of word-of-mouth impact. Across most product categories, we found that the content of a message must address important product or service features if it is to influence consumer decisions. In the mobile phone category, for example, design is more important than battery life. In skin care, packaging and ingredients create more powerful word-of-mouth than do emotional messages about how a product makes people feel. Marketers tend to build campaigns around emotional positioning, yet we found that consumers actually tend to talk – and generate buzz – about functional messages.
- The second critical driver is the identity of the person who sends a message. The word-of-mouth receiver must trust the sender and believe that he or she really knows the product or service in question. Our research does not identify a homogenous group of consumers who are influential across categories: consumers who know cars might influence car buyers but not consumers shopping for beauty products. About 8% to 10% of consumers are what we call influentials, whose common factor is trust and competence. Influentials typically generate three times more word-of-mouth messages than non-influentials do, and each message has four times more impact on a recipient’s purchasing decision. About 1% of these people are digital influentials – most notably, bloggers – with disproportionate power.
- Finally, the environment where word-of-mouth circulates is crucial to the power of messages. Typically, messages passed within tight, trusted networks have less reach but greater impact than those circulated through dispersed communities – in part, because there’s usually a high correlation between people whose opinions we trust and the members of networks we most value. That’s why old-fashioned kitchen table recommendations and their online equivalents remain so important. After all, a person with 300 friends on Facebook may happily ignore the advice of 290 of them. It’s the small, close-knit network of trusted friends that has the real influence.
Word-of-mouth equity empowers companies by allowing them to understand word-of-mouth’s relative impact on brand and product performance. While marketers have always known that the impact can be significant, they may be surprised to learn just how powerful it really is. When Apple’s iPhone was launched in Germany, for example, its share of word-of-mouth volume in the mobile phone category – or how many consumers were talking about it – was about 10%, or a third less than that of the market leader. Yet the iPhone had launched in other countries, and the buzz accompanying those messages in Germany was about five times more powerful than average.
This meant the iPhone’s word-of-mouth equity score was 30% higher than that of the market leader, with three times more influentials recommending the iPhone over leading handsets. As a result, sales directly attributable to the positive word-of-mouth surrounding the iPhone outstripped those attributable to Apple’s paid marketing six fold. Within 24 months of launch, the iPhone was selling almost one million units a year in Germany. The flexibility of word-of-mouth equity allows us to gauge the word-of-mouth impact of companies, products, and brands regardless of the category or industry. And because it measures performance rather than the sheer volume of messages, it can be used to identify what’s driving – and hurting – word-of-mouth impact. Both insights are critical if marketers are to convert knowledge into power.
The rewards of pursuing excellence in word-of-mouth marketing are huge, and it can deliver a sustainable and significant competitive edge few other marketing approaches can match. Yet many marketers avoid it. Some worry that it remains immature as a marketing discipline compared with the highly sophisticated management of marketing in media such as television and newspapers. Others are concerned that they can’t draw on extensive data or elaborate marketing tools fine-tuned over decades.
For those unsure about actively managing word-of-mouth, consider this: the incremental gain from outperforming competitors with superior television ads, for example, is relatively small. That’s because all companies actively manage their traditional marketing activities and all have similar knowledge. With so few companies actively managing word-of-mouth – the most powerful form of marketing – the potential upside is exponentially greater.
The starting point for managing word-of-mouth is understanding which dimensions of word-of-mouth equity are most important to a product category: the who, the what, or the where. In skincare, for example, it’s the what; in retail banks, the who. Word-of-mouth equity analysis can detail the precise nature of a category’s influentials and pinpoint the highest-impact messages, contexts, and networks. Equipped with these insights, companies can then work on generating positive word-of-mouth, using the three forms we identified: experiential, consequential, and intentional.
Although the importance of these triggers varies category by category, experiential sources are the most important across them. Harnessing experiential word-of-mouth is fundamentally about providing customers with the opportunity to share positive experiences and making the story relatable and relevant to the audience. Some companies, such as Miele and Lego, build buzz around products before launch and work to have early, highly influential adopters by involving consumers in product development, supported by online communities.
Consistently refreshing the product experience also helps harness experiential word-of-mouth – consumers are more likely to talk about a product early in its life cycle, which is why product launches or enhancements are so crucial to generating positive word-of-mouth. Buzz also can be sustained after launch: Apple has maintained interest in and excitement about the iPhone via its apps store, as constantly evolving and user-generated content maintains positive word-of-mouth.
Most companies actively use customer satisfaction insights when developing new products and services. Yet a satisfied customer base may not be enough to create buzz. To create positive word-of-mouth that actually has impact, the customer experience must not only deviate significantly from expectations but also deviate on the dimensions that matter to the customer and that he or she is likely to talk about.
For instance, while battery life is a crucial driver of satisfaction for mobile handset consumers, they talk about it less than other product features, such as design and usability. To turn consumers into an effective marketing vehicle, companies need to outperform on product and service attributes that have intrinsic word-of-mouth potential.
Managing consequential word-of-mouth involves using the insights provided by word-of-mouth equity to maximise the return on marketing activities. By understanding the word-of-mouth effects of the range of channels and messages employed and allocating marketing activities accordingly, companies can equip consumers to spread marketing messages and drive their reach and impact. In fact, McKinsey research shows that marketing-induced consumer-to-consumer word-of-mouth generates more than twice the sales of paid advertising in categories as diverse as skincare and mobile phones.
Two things supercharge the creation of positive consequential word-of-mouth: interactivity and creativity. They are interrelated, and particularly important for brands in relatively low-innovation categories that often struggle to gain consumer attention. One example of a company successfully harnessing this power is the UK confectioner Cadbury, whose “Glass and a Half Full” advertising campaign used creative, thoughtful, and integrated online and traditional marketing to spur consumer interaction and sales.
The campaign began with a television commercial featuring a gorilla playing drums to an iconic Phil Collins song. The bizarre juxtaposition was an immediate hit. The concept so engaged consumers that they were willing to go online, view the commercial, and create amateur versions of their own, triggering a torrent of YouTube imitations. Within three months of the advertisement’s appearance, the video had been viewed more than six million times online, year-on-year sales of Cadbury’s Dairy Milk chocolate had increased by more than 9%, and the brand’s positive perception among consumers had improved by about 20%.
Intentional word-of-mouth campaigns revolve around identifying influentials who become brand and product advocates. Of course, companies can’t precisely control what consumers tell others. But ambitious marketers can use word-of-mouth equity insights to shift from consequential to intentional campaigning.
The type of campaign that companies choose to adopt depends on the degree to which marketers can find and target influentials. Marketers capable of undertaking one-to-one marketing – such as mobile phone operators – are uniquely positioned to execute controlled and effective intentional word-of-mouth campaigns. Mobile carriers have granular customer data that can precisely locate influentials who know the category, talk to many people, and provide them with trusted opinions. That means messages can be directed at specific individuals who are most likely to spread positive word-of-mouth through their social networks. As a message spreads, this approach generates an exponential word-of-mouth impact, similar to the ripple effect when a pebble is dropped in a pond.
Companies unable to target influentials precisely must take a different approach. While Red Bull, for example, can’t send text messages to specific consumers, it has successfully deployed science to orchestrate effective intentional word-of-mouth campaigns. After identifying influentials among its different target segments, the energy-drink company ensures that celebrities and other opinion makers seed the right messages among consumers, often through events. While it can’t be sure who will attend, Red Bull knows that those who do will be the kinds of consumers it seeks – and that the positive messages they will relay across their own social networks can generate a superior return for its marketing investment.
Marketers have always been aware of the effect of word-of-mouth, and there is clearly an art to effective word-of-mouth campaigning. Yet the science behind word-of-mouth equity helps reveal how to hone and deploy that art: it shows which messages consumers are likely to pass on and the impact of those messages, allowing marketers to estimate the tangible effect word-of-mouth has on brand equity and sales. These insights are essential for companies that want to harness the potential of word-of-mouth and to realise higher returns on their marketing investments.
1. The term word-of-mouth, as used in this article, means consumer-to-consumer communication with no economic incentives. The sender may, however, reap social gratification or rewards.
2. See David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik, “The consumer decision journey,” mckinseyquarterly.com, June 2009.
Jacques Bughin is a director in McKinsey’s Brussels office, Jonathan Doogan is an associate principal in the London office, and Ole Jørgen Vetvik is a principal in the Oslo office.
This article was originally published in McKinsey Quarterly, www.mckinseyquarterly.com. Copyright 2010 McKinsey & Company. All rights reserved. Reprinted by permission.
6 Hacks to Drive Massive Referrals
Don’t plead. Don’t bribe. Don’t send chintzy gift cards. Instead, focus on the little things people appreciate.
Referrals and gifts are huge in business, but they’re often handled in all the wrong ways. Attempts to elicit referrals sometimes seem forced or in poor taste and can do more harm than good.
We recommend: 3 Easy Strategies to Nail Your Business Referrals
So, instead of following those broken formulas – pleading requests, in-your-face ads, cheap gift cards – build brand equity using these six best practices:
1. Actually surprise and delight
“Surprise and delight” is one of the most overused phrases in marketing, but it works. To truly surprise a client, you can’t just meet expectations; you have to exceed them.
My friend Brian Scudamore owns a slew of unsexy companies, but he’s dominated those industries by finding little ways to wow clients. For his painting business, for example, he makes sure fresh flowers are waiting when the job is done and the customers arrive home.
With his moving company, his employees call families in advance to take their orders for Starbucks. Such low-cost investments often drive more referrals than the companies’ primary services.
2. Realise that ‘it’s not about you’
When working with affluent clients, understand the psychology behind the referrals they give. They’re not doing it for some kind of kickback: They simply believe that your services would be useful to their friends or families.
Make your clients feel like they’re being taken care of, then – not bribed. If you decide to send a gift, send it “just because” at a later date, not as appreciation for the referral.
If someone refers a million-dollar client to you and you return the favour with a bottle of wine, your gesture is going to seem transactional.
3. Focus on the inner circle
Clients aren’t islands; they have significant others and families and friends. These inner circles have more influence on your clients than you could ever hope to have. The same applies to assistants. They may not be gatekeepers for referrals, but they’re definitely game-changers.
When I was working with my first NBA team, I made sure that the team’s office assistant received just as many gifts as the CEO.
Six months later, she helped me land meetings with five other team department heads, eventually scoring us a six-figure deal. Treating the assistant like an equal inclined her to open more doors for me.
4. Stop asking for referrals
It makes my skin crawl when I read, “The finest compliment you could give me is a referral to your friends and family” on a business card or email signature.
If you need to beg for a referral, do you really deserve one? People naturally refer businesses they’ve had good experiences with. Focus on the experience, not the presentation.
We recommend: 3 Common Delusions About Sources of Referrals
A top Cutco distributor recently decided to put a magnetic sign with his logo and contact info on the side of his car. I asked him, “Are the one or two leads a year you might receive from that really worth appearing tacky to the thousands of other people who’ll see it?” He quickly reconsidered and pulled the magnet off.
5. Don’t devalue the deed
One of my CEO-consultant clients told me about a time he waived his speaking fee for a prestigious event. The event organiser sent him a nice handwritten note, but made the mistake of including a R250 Amazon gift card with it. What kind of message did that send? “Thanks for donating your R200 000 speaking fee; here’s R250.”
Transactional gestures cause recipients to subconsciously add things up, making gifts feel unbalanced. Even a R2 000 gift card to a nice restaurant feels like a bribe if you’re a financial advisor earning a 1 percent management fee. Instead, send a genuine handwritten thank-you note, and acknowledge the referral.
6. Become an expert
When you yourself reach expert status, the barriers start to drop. Speaking at any event obviously brings in referrals and leads, but it also boosts credibility.
Recently, I spoke at a professional sports conference and landed a speaking gig at Google. When my clients heard that, I became a commodity they wanted to show off to their friends.
We recommend: Word-of-Mouth Referrals
Your customers are real people, and sabotaging your own brand equity will only make them think less of you. Instead, focus on the little things; this will actually help you build more meaningful, long-term relationships – no R200 gift cards required.
This article was originally posted here on Entrepreneur.com.
Untapped Marketing Tools
Describing how you or your product helped another customer can attract new sales.
Do you have happy customers? You know, the ones who are loyal, think you’re the greatest and continue to buy from you time and time again? Why not leverage the relationships with those customers to gain new customers? Your satisfied customers are the most powerful tool you have to help sell your product or service, and a case study is an excellent way to showcase your best customers.
A case study tells a short story of your customer’s satisfaction with the product or service you have provided, while illustrating what’s new, unique, special or different about you and your company at the same time. Regardless of the features – or even the benefits – of your product or service, prospects want to know the bottom line: That is, what results have you provided for others that you might also be able to provide for me?
Putting together a case study
Writing a case study doesn’t have to be complicated and can actually be quite simple if you follow this basic formula – customer name, business challenge, solution, result and testimonial.
For example, in my business, I provide a new business development programme called The Blitz Experience that empowers salespeople to schedule appointments with qualified prospects on the day of the training, resulting in a pipeline full of new opportunities at the end of the day.
5 easy steps
I’d put together a case study like this:
- Customer: ToolWatch
- Business challenge:
- To increase sales, ToolWatch needed a methodology to build a pipeline of new opportunities in order to close more business.
- Solution: Stirling (Pty) Ltd provided The Blitz Experience, a business development programme to empower ToolWatch salespeople to schedule appointments with qualified prospects on the day of the training.
- Result: Within 90 days of The Blitz Experience, ToolWatch generated more than R790 000 in sales as a direct result of the appointments scheduled during the Blitz Experience, enjoying an ROI of more than ten times the company’s investment in the programme.
- Testimonial: “Thought you would like to know the guys here appreciate you. And of course you will always be my favourite Blitz Master!” John Smith, CEO and founder, CanDoGo, and sales consultant for ToolWatch.
It is important to quantify the results by referring to specifics, such as “more than R790 000 in sales as a direct result of the appointments scheduled during The Blitz Experience, enjoying an ROI of more than ten times the company’s investment.” It is also very powerful if you can explain how your solution has affected your customer’s profit. It’s a good idea for you or someone in your company to write the case study, rather than ask your customer to write it, for a couple of reasons. First, it makes it easy for your customer to simply review and approve what you’ve written, rather than take the time to write the case study, which may not happen as quickly as you’d like. Second, by writing your own case study, you are in control of the message you want to convey and can speak specifically to the points you want to get across to your prospects.
Low cost marketing
You can also write the testimonial, if it isn’t already available from your customer, as long as you have permission to do so. Your case study should be no more than about 100 words and should fit easily on one A4 page. Case studies are also a great sales tool to display on your company website, in your marketing materials and in company press kits.
If you have a low budget for marketing materials, case studies are ideal because you can print them on your company letterhead, and they are very effective in creating curiosity, conveying your message and gaining credibility for you. Regardless of the size of your company or your marketing budget, you can leverage the relationships you have with your happy customers by building effective case studies. This powerful tool will attract new customers and aid in your efforts to develop your business.
Marketing & Sales Must Work in Unison
Tips for creating promotional marketing materials that work as hard as you do.
Great marketing materials
Develop a set of cohesive marketing tools
- Support sales with marketing.
- Create a marketing drive.
- Think like a customer.
- Touch prospects at key points.
- A business card for networking
- A fold-over note card for handwritten follow up with prospects
- A brochure and letter to mail following phone calls
- Emails for lead follow up
- A PowerPoint sales presentation
- Printed sell sheets
- A comprehensive sales leave-behind
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