Revisiting WOM’s revenue-driving power

From a LinkedIn conversation I recently learned that the Zócalo Group recently released a study underscoring the importance of word-of-mouth referral.  And while it doesn’t exactly shake up current thinking, the study does serve as a timely reminder of the value of purchasing recommendations made by people deemed influential by the purchaser.  Of their 1000 survey respondents, half were men, half women, and all located in US.  (Of course, there’s real danger in extrapolating numbers from a US-centric purchasing survey and applying the findings to rest-of-world habits, but that’s another topic for another day.)  Most of the survey’s findings relate what we already know:  Recommendations from trusted sources are important.  A person’s relationship with the recommender is important – closeness proxies for trust.  A conversation (“offline”) is more influential than electronically-conveyed opinions (online), which is more influential than advertising.  No real surprises here.

Perhaps the most important part of the study doesn’t come from the survey itself, rather from the preamble given accentuating the power of recommendations to a company’s potential revenues.  In fact, they point to other studies from years past that (positive) word-of-mouth recommendation is a significant revenue driver.  To wit:

Brands are eager to tap into the power of the recommendation, and numerous companies measure what’s called an “NPS,” or Net Promoter Score, illustrating how likely one is to recommend a specific brand or company. “A 7% increase in word-of-mouth advocacy unlocks 1% additional company growth.”3  Experts have shown that “a 12% increase in Brand Advocacy, on average, generates a 2x increase in revenue growth rate plus boosts market share” and conversely, “a 2% reduction in negative word-of-mouth boosts sales growth by 1%.”4

3 Advocacy Drives Growth, Fred Reichheld, Paul Marsden

4 The Ultimate Question, Driving Good Profits and True Growth, Fred Reichheld, HBS Press

Arguably, those word-of-mouth recommendation plays a greater role in purchasing habits today than when these studies were first published, so the figures quoted here are on the low end of what’s possible.  We know this because we’ve worked with influential community voices to drive content and product demand, achieving far more than first-party (company-generated) content, and miles beyond CTR and conversion rates proffered by ads.  (Have a look at any one of our case studies for a deeper dive into the results.)

Like I said, while not exactly groundbreaking in the insights it provides, the study Zócalo Group serves as a forceful reminder of the power of social marketing – and that that power is only going to intensify.

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