Word-of-Mouth and Social Networking

WORD-OF-MOUTH AND THE SOCIAL NETWORKING

The technology for managing customer relationships has gotten fairly sophisticated. Companies can draw on databases that tell them how much each customer has purchased and how often, which they may supplement with detailed demographic profiles. By applying statistical models, they can predict not only when each customer is likely to make a future purchase but also what he or she will buy and through which channel. Managers can use these data to estimate a potential lifetime value for every customer and to determine whether, when, and how to contact each one to maximize the chances of realizing (and even increasing) his or her value.

Company that wanted to know a customer’s full value would include a measure of that person’s ability to bring in profitable new customers. But the nearest that most firms get to estimating the value of a customer’s referral power is some gauge of the individual’s willingness to make referrals (Kumar, Petersen, and Leon, 2007) .

Word of mouth (WOM) is the process of conveying information from person to person and plays a major role in customer buying decisions (Richins & Root-Shaffer, 1988).  In commercial situations, WOM involves consumers sharing attitudes, opinions, or reactions about businesses, products, or services with other people. WOM marketing is influential, multifaceted, and typically hard to influence (Dellarocas, 2003; Ha, 2006; Helps et al., 2004). Positive WOM is considered a powerful marketing medium for companies to influence consumers.WOM communication functions based on social networking and trust: people rely on families, friends, and others in their social network. Research also indicates that people appear to trust seemingly disinterested opinions from people outside their immediate social network, such as online reviews (Duana, Gub & Whinston, 2008). This form is known as online WOM (OWOM) or electronic WOM (eWOM).

Recently online social networking sites like Facebook.com and Twitter.com have emerged as a popular way of discovering information on the World Wide Web. In contrast to traditional methods of content discovery such as browsing or searching, content sharing in social networking sites occurs through word-of-mouth, where content spreads via conversations between users. For instance, users share links to content on the web with personal recommendations like “This is a must-see video”.

While such WOM based content discovery existed long before in the form of emails and web forums, online social networks (OSNs) have made this phenomenon extremely popular and globally reaching (Rodrigues et al., 2011). In fact, today social networking sites are known to be a major driver of traffic to many web sites (Campbell, 2009).  Facebook and Twitter drive, respectively, 44% and 29% of the traffic (Schonfeld, 2010).  These OSNs are sharing tens of millions of web links every day, and we expect that the amount of information exchanged by word-of-mouth in OSNs will grow over time (Rao, 2010).

REFERENCES:

Campbell A. (2009), Social Activity Becomes Significant Source of Website Trac, Small Business Trends, http://smallbiztrends.com/2009/03/social-activity-signicant-source-website-trac.html.

Dellarocas, C. (2003). “The digitization of word-of-mouth: Promise and challenges of online reputation systems”, Management Science, 49 (10), pp. 1407–1424.

Duana,W., Gub, B., &Whinston, A.B. (2008). “Do online reviews matter?— An empirical investigation of panel data”, Decision Support Systems, 45 (3), pp. 1007–1016.

Ha, H.-Y. (2006). “The effects of consumer risk perception on pre-purchase information in online auctions: Brand, word-of-mouth, and customized information”, Journal of Computer-Mediated Communication, 8, (2).

Helps, J.E., Lewis, R., Mobilio, L., Perry, D., & Raman, N. (2004). “Viral marketing or electronic word-of-mouth advertising: Examining consumer responses and motivations to pass along email”, Journal of Advertising Research, 44 (2), pp. 333–348.

Kumar, V.; Petersen, Andrew J. and Leon, Robert P. (2007), “How Valuable Is Word of Mouth?”, Tool Kit, Harvard Business Review, pp. 1-9

Rao, L (2010), Twitter Seeing 90 Million Tweets Per Day, 25 Percent Contain Links, TechCrunch, http://techcrunch.com/2010/09/14/twitter-seeing-90-million-tweets-per-day/.

Richins, M.L., & Root-Shaffer, T. (1988). “The role of involvement and opinion leadership in consumer word-of-mouth: An implicit model made explicit”, Advances in Consumer Research, 15, pp. 32–36.

Rodrigues, Tiago; Benevenuto, Fabrício; Cha, Meeyoung; Gummadi, Krishna P. and Almeida, Virgílio (2011), “On Word-of-Mouth Based Discovery of the Web”, IMC 11, November 2-4, 2011, Berlin, Germany.

Schonfeld, E. (2010), Facebook Drives 44 Percent of Social Sharing On The Web, TechCrunch, http://techcrunch.com/2010/02/16/facebook-44-percent-social-sharing/.