The Impact of Word of Mouth

For many years I have been stating in my workshops that reputation is important because people will tell other people about their experiences in dealing with your organization. For many years marketers have spoken about the exact same thing , with their focus being on marketing and sales targets.

It is a known fact that we will ask the people we trust for advice when making major purchasing decisions. For instance a young person buying a car most likely will ask his father for advice on the purchase that he or she wants to make. Often we do this as routine behavior. The words we hear can have a major impact on our buying decisions.

Now new research from academics at the London School of Economics and Political Science (LSE) and The Listening Company have revealed the real financial impact words can have.

They found that word of mouth, both positive and negative, is a powerful component in driving UK business growth.

Word of mouth can also be used to predict sales growth; the higher the net-promoter score*, the industry standard measure of word of mouth, the higher the growth. Dr Paul Marsden and Alain Samson of LSE and Neville Upton, The Listening Company, compared the results of a telephone survey on a random sample of 1,256 adult consumers in the UK against the 2003 and 2004 sales data from banks, mobile phone networks, supermarkets or car manufacturers.

The found that both word of mouth advocacy (as measured by net-promoter score) and negative word of mouth were statistically significant predictors of annual 2003-2004 sales growth:

  • Companies enjoying higher levels of word of mouth advocacy (higher net-promoter scores), 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, 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.

The report concludes by suggesting that the net-promoter score as a measure of word of mouth advocacy may be useful not only in predicting sales growth, but also in predicting share performance and employee productivity….ultimately having a influence on how the company is regarded (reputation)

Dr Paul Marsden, LSE’s Institute of Social Psychology, said: ‘These findings suggest that businesses seeking year-on-year growth may be overlooking their most powerful growth-generating asset; existing clients, customers or consumers. With a range of turn-key solutions for optimising word of mouth advocacy, businesses can transform satisfied buyers into vocal advocates who become part of a volunteer sales force.’

The researchers conclude that three simple questions could predict overall business performance:

  • Likelihood that customers would recommend a company or brand to friends or colleagues. Net-promoter score as a predictor of sales growth.
  • Likelihood that investors would recommend investing in a company to friends or colleagues. Net-promoter score as a predictor of share performance.
  • Likelihood that employees would recommend working for their company to friends or colleagues. Net-promoter score as a predictor of productivity.

Read more about this survey:

The economics of buzz – word of mouth drives business growth finds LSE study – News archive – News and events – Press and Information Office – LSE

Moving prospects along the Ladder of Loyalty to become advocates – people who will vocally promote your organization is an important task for managers, but even more so for Reputation Managers.

We need to monitor very closely what people are saying about us, and when these words are not positive we need to correct them, we need to educate and persuade until a person’s words of choice becomes favourable to the organization.