Edition 06

Word of Mouth Versus Traditional Marketing. Friend or Foe?

26th September 2009 By Graham Hill no comments

Social marketing is fast becoming a steady fixture for the majority of marketers.

By social marketing, I mean marketing by c2c, often enabled by internet and increasingly, by mobile internet technology.

As both the Economist Intelligence Unit and McKinsey showed in recent surveys, social marketing is also attracting increased marketing resources. But the key question is whether or not social marketing achieves a better return on these resources than traditional marketing does.

As is often the case with marketing, there is much more heat being produced than light at the moment. Countless studies on the power of word of mouth communications mingle with an equal number of studies on the difficulties measuring the return on marketing, to produce a no-man’s land where almost anything goes. But a few recent studies have started to shed more light on the value of social marketing compared to traditional marketing and equally important, how they fit together in the contemporary marketing mix.

The first study by Kumar, Petersen & Leone looks at How Valuable is Word of Mouth?. Kumar et al looked at the lifetime value of telecoms and financial services customers who were active in referring the companies to others vs. those who weren’t. Perhaps not surprisingly, even though a majority of customers thought they would recommend the company to others, only a minority actually did so. And only a small minority of those to whom the companies were recommended actually become customers. What was more surprising is that despite these poor results for word of mouth marketing, the value of customers who recommend the companies to others was up to four times the value of customers who didn’t. Most surprisingly, there was no clear relationship between the value of a customer’s own purchases and the value of their recommendations to others.

The second study by Villanueva, Yoo & Hanssens looks at The Impact of Marketing-Induced vs Word of Mouth Customer Acquisition on Customer Equity Growth. Villanueva et al looked at how customer value grew for a web hosting company depending upon whether they were acquired by traditional marketing or word of mouth marketing. Not surprisingly, they found that although customers were quicker to acquire through traditional marketing, word of mouth marketing acquired customers who were twice as valuable over the longer-term.

The final study by Duncan Watts looks at Viral Marketing for the Real World . Watts looked at a number of high-profile viral marketing campaigns and found that most failed to ‘go viral’, further discussion petering out within a few contacts and thus failed as viral marketing campaigns. Watts showed how a combination of traditional marketing to build awareness of a marketing campaign plus viral marketing enabled by forwarding tools like Eyebeam’s ForwardTrack greatly increased the transmission of the campaign through the target population.

All three studies contribute towards our understanding of how social marketing works and its place in the marketing mix. Clearly, social marketing is important in acquiring higher-value customers and in growing the value of customers once they are onboard. But identifying customer most likely to recommend a company to others isn’t just a case of looking at their value as individuals. And it obviously depends upon the company actually having something worth recommending to others. Perhaps most importantly, the value of balancing traditional marketing to build awareness and knowledge with social marketing to acquire high value customers is slowly becoming clear. But there is still a lot of work to be done before we really understand how social marketing works.

“Written by Graham Hill of CACI Sophron and republished with permission from CustomerThink.com (www.customerthink.com). Copyright CustomerThink Corp.”

About the author: Graham Hill


Dr. Graham Hill about himself:

I have worked at the forefront of CRM thinking for over 20 years with major management consultancies and as an independent CRM consultant. My specialties include financial services, telecoms, automotive and aviation industries, and the public sector.

My current work is in the area of Customer Value Management – working with clients to optimize value creation from their CRM investments

I am as Associate at CACI Sophron, the resident Customer Value Management guru at CustomerThink, formerly CRMGuru, (www.customerthink.com), the leading independent CRM portal and an international advisor at Greater China CRM (www.gccrm.cn), the leading Chinese CRM portal.

Experience in all aspects of CRM, Customer Experience Management and Customer Co-creation, in particular, pilot project management, large-scale change management, organisation development, management training, M&A due diligence


Dr. Graham Hill
CACI Sophron, a division of CACI UK Limited
graham.hill (AT) web.de
LinkedIn: http://www.linkedin.com/in/grahamhill 

Customer Value Management Guru
Blog: http://www.customerthink.com/gurublog/graham_hill

International Advisor
Greater China CRM

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