When a company uses its customers to promote a product via word-of mouth it is engaging in

Written by Alejandro Sánchez Contreras

1. What is online word-of-mouth and why is it important to manage?

Online or electronic word-of-mouth (eWOM) has been defined as “any positive or negative statement made by potential, actual, or former customers about a product or company, which is made available to a multitude of people and institutions via the Internet” (Hennig-Thurau, Gwinner, Walsh & Gremler, 2004, p. 39). Moreover, eWOM also includes opinions and share of information not only about products but also about services and brands (Jalilvand, Esfahani, & Samiei, 2011). In this post I will address the question: what are key characteristics of eWOM that companies need to know in order to manage it effectively?

Despite eWOM is different from traditional word-of-mouth (WOM) (ibid), in this post I will sometimes use the term WOM since some of the authors quoted use WOM to explain eWOM. Firstly, I will discuss from the literature the key characteristics of eWOM; and secondly I will apply the theory to successful and failure examples of real company cases: Starbucks, Tesco, Procter & Gamble, Epinions, Amazon & Folica.

So why should I write about eWOM? Is eWOM relevant at all? One reason is that more than ever people are discussing brands in different online platforms (Zhang, Ye, Law, & Li, 2010). Moreover, Mahajan, Muller & Bass, (1990) state that WOM can affect the evaluations of products; Gruen, Osmonbekov, & Czaplewski (2005) affirm it affects loyalty; and Bass (1969) explains that WOM increases or decreases product acceptance. Moreover, WOM can especially influence intangible products such as services in the hospitality sector like hotels, restaurants and travel agencies (Zhang, Ye, Law, & Li, 2010), since customers may not have enough experience before they purchase the service (Klein, 1998).

However, the most important reason to write about eWOM is that it affects consumers’ purchase decision (Jalilvand, Esfahani, & Samiei, 2011) and product sales (Chevalier & Mayzlin, 2006; Trusov, Bucklin, and Pauwels, 2009), and therefore it should be relevant for companies with online presence. Furthermore, Godes & Mayzlin  (2004) find out that one of the most important effects of WOM is that it can increase product sales and at the same time these c create more WOM, both factors affecting positively each other.

Lastly, another of the problems is that most consumers (around 70% in the US) trust more their close friends and relatives regarding product recommendations than they trust companies in online platforms like Facebook or Twitter (Extole, 2013).

2. Types of eWOM

Some of the most common forms of eWOM are the rating and the review (Chatterjee, 2001). The review can be either information or recommendations, which, as Park, Lee & Han (2007) say, can be positive or negative. According to Chen & Xie (2008), reviews can also be classified into those written by consumers or by professionals (e.g. food reviewers). Furthermore, according to AC Nielsen (2007) customers’ comments are as trusted as a company’s website and this could potentially risk a brand (as we will further see in the example of Tesco).

Additionally there are also different types of online platforms with different characteristics where people can interact and that shape the different types of eWOM. For instance, Litvin, Goldsmith, & Pan (2008) describe the one-to-one messaging (e.g. e-mail), one-to-many (e.g. websites) and many-to-many (e.g. blogs). Moreover, the authors also distinguish between those which are synchronous (e.g. instant messaging) and asynchronous (e.g. product reviews). Moreover, there are even specialized websites like Epinions or TripAdvisor where products, hotels, restaurants and other services are rated and commented (Zhang, Ye, Law, & Li, 2010).

Finally, one of the latest types of eWOM is visual: the so called unboxing videos where customers unpack their product, film themselves and upload the video to a platform like YoutTube, so that people can see the real product used by a real customer. However, this is an unexplored field and its potential is still unknown (King, Racherla & Bush, 2014).

Figure 1 shows the former classification of types of eWOM:

Despite the eWOM classification in Figure 1 could be even more complex (there are also combinations of eWOM like Facebook), the key message for managers is that they have to be ready for all types of communication with customers and potential customers.

3. Characteristics of eWOM

To understand the key characteristics of eWOM King, Racherla & Bush (2014) identify 6 important aspects:

a)      Enhanced volume: more people can be reached by eWOM than with traditional WOM. Moreover, a study by Vermeulen and Seegers (2009) found that eWOM can increase awareness, which at the same time can generate more sales (Yong, 2006).

b)     Platform dispersion: meaning whether comments about a product are done in differentiated online platforms (Godes and Mayzlin, 2004).

c)      Persistence and observability: comments remain on the Internet and are searchable (Hennig-Thurau, Malthouse, Friege, Gensler, Lobschat, Rangaswamy & Skiera,  2010). Moreover, it is also important to know how people are influenced by comments. According to Sussman & Siegal (2003), people’s comments influence others depending on both the quality of the argument and the relevance of its source; and King, Racherla & Bush (2014) state that also other factors like the language used and the way it is written affect the comment’s credibility. Finally, since eWOM is persistent and observable it will impact eWOM content in the future.

d)     Anonymity and deception: according to Ku, Wei & Hsiao (2012) Internet sometimes allows to write anonymously, so companies can use it to promote their products through eWOM (Resnick, Zeckhauser, Friedman, & Kuwabara, 2000), thus damaging it (King, Racherla & Bush, 2014). Therefore, Mudambi & Schuff (2010) suggest that quality of eWOM should be over quantity, for instance using reputation systems and expertise depth: consumers find more credible an expertise answer from a company than its ability to answer in multiple platforms (King, Racherla & Bush, 2014).

e)      Salience of valence: this means that customers rate products and those numbers are easily interpreted by people (King, Racherla & Bush, 2014; Chevalier & Mayzlin (2006). However, there are contradictory studies regarding the relationship between rating and sales (King, Racherla & Bush, 2014): some indicate a positive relationship (Chevalier and Mayzlin 2006; Li and Hitt 2008); some indicate confirmatory bias, meaning that customers already decided to buy a product but look for confirmation (Klayman and Ha 1987); and others show negativity bias, meaning that negative reviews affect neutral customers more than positive reviews (Cui, Lui & Guo 2012; Mizerski, 1982).

f)       Community engagement: online community platforms like Facebook, Twitter or YouTube allow customers to learn from each other about products. Thus, not only firms engage customers but also customers themselves influence others. Community engagement can be generated through online interactions among customers (Algesheimer, Borle, Dholakia & Singh, 2010) and if it is achieved, it can help the firm to have a competitive advantage (Brodie, Hollebeek, Juric & Ilic, 2011). Therefore, companies must find people to engage and create quality content (King, Racherla & Bush, 2014). 

Some other important learnings from eWOM are:

·        Biases:

o   The more the better: the more eWOM comments can be found, the more encouraged people will be to share a comment, and also the other way round: people might not participate in eWOM if there are only few eWOM messages visible. The problem with this is that only a few products generate most of the eWOM messages (King, Racherla & Bush, 2014).

o   Disagreement: there is also a tendency to comment only whenever customers disagree with professional reviewers like film critics (Dellarocas, Gao & Narayan, 2010).

o   Under-reporting is also quite common: only those very happy or unhappy customers will participate in eWOM (King, Racherla & Bush, 2014).

·        Drivers of eWOM: despite customer reputation is the main driver of eWOM (King, Racherla & Bush, 2014; Cheung and Lee, 2012), also firms can encourage customers by offering economic incentives (King, Racherla & Bush, 2014). Moreover, some reasons why consumers seek eWOM are related to reducing their risk (Kim, Mattila & Baloglu 2011) as well as their time and effort when searching and evaluating (Dabholkar, 2006).

4. Managing eWOM: the cases of Starbucks, Tesco, Procter & Gamble, Epinions, Amazon & Folica

4.1 Starbucks: virtual community, platform dispersion and community engagement in eWOM

Starbucks marketing strategy is not like other multinational companies that spend millions of dollars on traditional advertisement, but it rather relies on WOM, social media and the power of its brand to keep attracting customers. The quality of their products and the experience within the store are also key components of their WOM strategy, since that was what motivated people to spread the word about them (Isidro, n.d.; SOS Marketing, 2011; Amanda, 2012).

Based on the eWOM characteristics of enhanced volume and platform dispersion, Starbucks is present in some of the most important social media platforms including Facebook, Twitter, Instagram, YouTube, Google Plus and it has its own blog, thus reaching more people, increasing awareness and generating more sales. Furthermore, Starbucks has also an app that anyone can download and it is made to facilitate payment in the stores and manage their loyalty program, engaging their customers to its brand since they can “carry” it on their smartphones (ibid).

Starbucks offers free high-speed Internet for their customers, which can be seen as a clever strategy not only to make customers feel like at home but to let them share their coffee experience through social media, therefore creating awareness of Starbucks, so that they can enjoy an experience beyond drinking coffee and feel like at home (Isidro, n.d.).

Starbucks has its own virtual community of people who interact with the brand and share their experiences. At the same time Starbucks tries to engage in a “personal” dialogue with them (Vote for us, n.d.), which emphasizes the quality over quantity prescription for eWOM. For example, the website “My Starbucks Idea” was launched with the objective of allowing customers to share suggestions and give feedback to enhance the service and the brand. On the website customers could also vote other peoples’ ideas as well as discuss them, and this way Starbucks could see which were the most popular ideas and further implement them (Knight, 2014). This is a clear example of another eWOM characteristic, community engagement, where customers interact, learn, influence and engage each other. As explained, this consumer engagement can generate a competitive advantage for Starbucks.

Source: Knight (2014)

4.2 Tesco UK and the horse meat scandal: persistence and observability in eWOM

In 2013 a scandal regarding food containing horse meat hit Europe and several companies, being Tesco one of the main involved. Tesco UK twitted a few days after the scandal was unveiled “It's sleepy time so we're off to hit the hay!”, which was understood as a joke about horses by many customers who quite angry replied Tesco UK on Twitter and showed their disappointment with the company. Day after day social media spread the word about the scandal with comments, tweets and jokes, and all this was reflected on the drop of the company’s market value. This case illustrates the persistent nature of eWOM, since once a message is sent it will be searchable and observable, and therefore it can continuously harm a brand over the time (Finnegan, 2013; Blake, 2013; Know your meme, 2013).

Source: Know your meme (2013)

This also exemplifies how important it is to pay attention to the written language, since something that might not have any controversial meaning could be polemic within a certain context.

Source: Twitter (2013)

4.3 Procter & Gamble and Epinions: anonymity and deception in eWOM

In 2005 Procter & Gamble was accused by the US Trade Federal Commission of promoting some of its products through a force of 250,000 teenagers who would spread the word about some products among their peers in what it was considered a word-of-mouth strategy. The problem is that it was not disclosed, so it could be considered deception, which as analyzed before would in turn affect the company’s legitimacy, reputation and harm its image (Horovitz, 2005).

On the other hand I find in Epinions a good example of eWOM and reputation system. On this website people can write reviews and rate all kind of products. Epinions positions itself as “unbiased opinions by real people” and it has achieved much success and good reputation by letting all comments be posted and not letting their users modify them (Epinions, 2015).

4.4 Amazon: salience of valence in eWOM

In websites like Amazon products can be assessed and rated by customers. As I analyzed before we know now that neutral customers are more likely to be influenced by negative rates than positive ones, so these type of companies should try to spend less energy and time trying to sell these products and focus on those who have higher ratings, because the impact on sales may be higher.

4.5 Folica: incentivizing customers to participate in eWOM

We have seen that eWOM can be biased and that the more comments are visible the more reviews customers will provide. However, how can a company increase the number of people engaged in eWOM? Companies must look at the drivers of eWOM in order to build their strategy. Some of the main drivers companies can manage are economic incentives.

For example, Folica, a company that sells hair-related products, offered 10$ credit to advocates (i.e. customers who refer to another friend) and also 10$ off for the friend, without any accumulative limits for the advocate, who could keep earning money as long as he or she continued referring to friends. Then, the advocates had to share a link through social media like Twitter, Facebook or per E-Mail, addressing the company and the offer with a default message. The campaign was a success and in one month more than 6,000 advocates participated, with about 21,000 total shares (Extole, 2013).

Source: Extole (2013)

Some of the main principles that companies should keep in mind when developing referral programs are (ibid):

1.      Creating a compelling offer: loyalty points, free product trials or gift cards when sharing the company’s content or liking its Facebook page.

2.      Promote it: Website, social media platforms, e-mail, communities.

3.      Make it easy to share: default messages, Facebook, Twitter, send personalized URL, show what the advocate gets and the offer.

4.      Personalize it: make it personal and use the advocate’s name, simple and short message.

5.      Keep it top of mind: remarketing and make it easy for the advocate to keep participating.

6.      Monitor the program and measure the results.

5. Conclusions

Online word-of-mouth is an important marketing strategy that affects people’s purchase decisions and therefore companies’ sales. Answering the question what are key characteristics of eWOM that companies need to manage effectively in order to succeed?, firstly it is necessary to understand the different forms eWOM can adopt in different online platforms and emphasize the quality over quantity of the comments or responses; secondly it is vital to know eWOM’s key characteristics (enhanced volume, platform dispersion, persistence and observability, anonymity and deception, salience of valence and community engagement), as well as its challenges (e.g. biases) and drivers. Finally, through a series of company cases I’ve analyzed the most important characteristics and how some companies have used or misused eWOM, benefiting or harming their brands.

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