The economics of buzz

For too long marketers have lauded, lambasted or sat on the fence with regards to the economics behind buzz and word of mouth marketing. I believe that is because most marketers always seek proof, are typically risk averse and typically hide behind volume based activities.

Dr Paul Marsden and Alain Samson of LSE and Neville Upton from the The Listening Company have brilliantly put an end to this viscious circle. According to their research - word of mouth, both positive and negative, is a powerful component in driving UK business growth finds new research.

They found that both word of mouth advocacy (as measured by a ‘net-promoter’ score) and negative word of mouth were statistically significant predictors of annual sales growth.

Let me say that again. Statistically significant predictors of annual sales growth.

Here are the highlights of their research:

• Companies enjoying higher levels of word of mouth advocacy (higher net-promoter scores), such as HSBC, Asda, Honda and O2, grew faster than their competitors in the period 2003-04.
• Companies suffering from low levels of word of mouth advocacy and high levels of negative word of mouth, such as Lloyds-TSB, Sainsbury’s, Fiat and T-Mobile, grew slower than their competitors.
• A 7 per cent increase in word of mouth advocacy unlocks 1 per cent additional company growth.
• A 2 per cent reduction in negative word of mouth boosts sales growth by 1 per cent.
• In monetary terms, for the average company in the analysis, a 1 per cent increase in word of mouth advocacy equated to £8.82m extra sales.
• A 1 per cent reduction in negative word of mouth for the average company in the study resulted in £24.84m in additional sales.
• Companies with above average positive word of mouth and below average negative word of mouth grow four times as fast as those with below average positive word of mouth and above average negative word of mouth.
• A literature review of techniques for optimising word of mouth advocacy and thereby unlocking growth identified eight distinct techniques: Referral Programs, Tryvertising, Empowered Involvement, Brand Ambassador Programs, Causal Campaigns, Influencer Outreach, Advocacy Tracking and Innovation.

These findings suggest that businesses seeking growth overlook their most powerful growth-generating asset (existing clients, customers or consumers) at their peril.

By putting in place solutions for optimising word of mouth advocacy, businesses can transform satisfied buyers into vocal advocates who become part of a volunteer sales force.

Now that’s Strategic Alternative Marketing!