Wednesday, March 16, 2005

Word of Mouth - No Loyalty

As consumers become more impervious to traditional marketing tactics, companies are increasingly turning to word of mouth (WOM) campaigns to engineer conversations--or buzz--among customers. Researchers at the Yale School of Management and Harvard Business School have conducted the first study that examines the effectiveness of firm-sponsored WOM with a surprising result:
consumers with no loyalty to the firm or product create more powerful WOM than loyal customers.
The study, "Firm-Created Word of Mouth Communication" by Dina Mayzlin of the Yale School of Management and David Godes of Harvard Business School, demonstrates that firms can create incremental word of mouth (over and above what may have existed outside the program) to increase sales. In a quasi-experiment, Godes and Mayzlin studied a campaign to create WOM for a national retail chain. Over 13 weeks, loyal customers of the chain and "agents"
enlisted by a small promotion agency that specializes in creating WOM communication for its clients, engaged in a word of mouth campaign to promote the product.
Among the study's findings: word of mouth was found to be most powerful when it occurred between acquaintances, and the most powerful incremental word of mouth may come from those less-loyal to the firm. The study can be downloaded
"It may seem surprising that the loyal customers are not the most effective word of mouth agents," said Mayzlin. "But it's quite intuitive when you consider that it's incremental word of mouth--the buzz over and above what the customer has already created--that increases sales. Loyal customers have already told their friends about the products they like, perhaps a number of times. Their networks are tapped out. On the other hand, the non-loyals' untouched networks represent a fertile ground for incremental sales. It is precisely the less loyal customers who should be the target of WOM campaigns."
Mayzlin and Godes tried to identify whom among the non-loyal customers would be the best at spreading WOM to their acquaintances since this is where the sales impact is highest. While opinion leaders--those who have expertise and communicate it--are typically seen as key communicators in marketing efforts, this does not hold true for non-loyal customers, where opinion leadership does not appear to be correlated with propensity to create incremental word of mouth.
The authors suggest that a measure of one's network density--how many people one knows--is a more effective way to find the key communicators among non-loyals.
"This suggests that in WOM campaigns, it is crucial for the non-loyal word of mouth agents to have large social networks," said Mayzlin.
The Yale Center for Customer Insights at the Yale School of Management is a research center devoted to studying the behavior of customers. The Center welcomes inquiries from organizations interested in research partnership and sponsorship opportunities. For more information visit: