Another thought-provoking piece of research from one of our ‘must read’ organisations, the Marketing Science Institute is the Sources of Social Value in Word-of-mouth Programs.
Using computer agent models based on 12 real world communities (several provided by Lithium), Libai, Muller and Peres focussed on the impact Word of Mouth (WOM) has on the value (discounted cash flow) generated in a new product introduction.
Their particular interest was on the WOM generated by ‘seeding’ programs, where organisations give new products to a portion of the customer population in order to invoke WOM. I believe the principles discussed in their paper probably apply to any WOM initiative, not just seeding programs.
The focus on hard dollar returns is notable and useful for marketers considering WOM programs (and certainly plays to our bias for ‘do’ marketing). The authors call these hard dollar impacts changes in ‘social value’ for the customer population.
Two ways that WOM can increase the value of the social network, i.e. make you money (versus new product diffusion with no WOM) were examined; [Read more…]