Word-of-mouth (WOM) is one of the most influential forms of communication on customer purchases. And while this has always been the case, one thing has dramatically changed in the past two decades: companies are no longer content to simply let WOM happen organically.
Companies increasingly plan for WOM and seek to spur favorable WOM for their brand via tools such as “referral programs, which encourage and incentivize current customers to contribute to customer acquisition by helping to acquire new customers; online recommendation programs, which encourage individuals to spread the word to their close social network or a broader network such as in an online review website; and seeding programs, which aim to get products into the hands of some individuals (seeds) in the hope that the consequent social influence will help accelerate and expand the growth process” (p. 65, emphasis added). And research reveals the positive impact of these tools on sales and profitability.
Does WOM effectiveness depend on other marketing mix spending?
Yet as more and more companies are integrating WOM tools into their marketing plans, it’s important to consider whether the effectiveness of the tools depends on other marketing efforts. In practice, companies are often at a loss as to why their spending on WOM programs produces widely divergent results, and failure to consider how WOM interacts with other marketing mix spending may be an important part of the explanation.
With this in mind, a research team from four different European universities pulled together data from across consumer goods companies in four fast-moving product categories (instant coffee, sensitive toothpaste, anti-age cosmetics, and organic chocolate) to explore whether seeding programs are more or less effective in the presence of other firm advertising and sales promotions.
In consumer goods industries, seeding campaigns are often done in mature product categories in an environment in which larger scale advertising and sales promotion efforts are already taking place. Unfortunately, it is common for marketing planning for advertising and sales promotions to take place independent of planning for seeding which may lead to suboptimal results. In fact, plans for advertising and sales promotions often take place first and then seeding happens with left-over budget. But is this optimal?
WOM Seeding – A Substitute for Advertising, A Complement for Sales Promotions
To investigate this question, the research team combined advertising and promotion plans from brand managers, retail sales data from market research companies, and WOM variables from agencies that create seeding campaigns. Using a variety of analytical approaches to rule out alternative explanations, here’s what the researchers found:
- Firm-created WOM via seeding programs has a consistent positive impact on sales.
- Firm-created WOM via seeding programs has a negative interaction with spending on advertising, regardless of form – TV, digital, or print.
- Firm-created WOM via seeding programs has a positive interaction with spending on sales promotion, regardless of form – point of sale or direct email.
The first result is straightforward, but the other two will benefit from some further explanation.
First, firm-created WOM has a negative interaction with advertising. This means that the WOM seeding becomes less effective as more is spent on advertising, and vice versa. So the results indicate that WOM seeding and advertising are substitutes rather than complements for one another. Although this may vary in other product contexts, WOM seeding and advertising provide the same benefit in the fast-moving consumer goods categories studied. Specifically, in these relatively low-risk categories, both WOM seeding and advertising serve the common role of creating new product awareness and familiarity rather than reducing risk.
Second, firm-created WOM has a positive interaction with sales promotions. This means that WOM seeding becomes more effective as more is spent on sales promotions, and vice versa. Unlike advertising, the results indicate that WOM seeding and sales promotions are complements rather than substitutes for one another. The positive interaction indicates that WOM seeding strengthens consumer awareness and preferences which then makes sales promotions even more effective.
Overall, the research suggests that companies considering a WOM seeding program should integrate it into planning for sales promotions to ensure that the positive complementary effect is realized. However, as the authors conclude, firms should refrain from adding a WOM seeding program “to the ‘big bang’ marketing plan” that also includes substantial advertising as this could lead to wasted spending. Rather, firms should consider spending on WOM seeding first to reach a smaller group of customers with rich product information, and then follow this with “high-reach advertising to still inform unaware consumers and possibly recall [seeding]-induced memories of those already informed” (p. 77).