Advertisers and marketers are readressing the value of good old-fashioned word-of-mouth referrals and increasing budgets in this area are reflecting this change. So how can WOM be better used to boost sales and drive awareness, retention and brand loyalty?
When Josh Bernoff, vice president of Proctor and Gamble, recently announced that social media and referral marketing were more effective than advertising, marketers around the world listened.
The Cincinnati home products giant is a leader in modern marketing. It was the first to focus on research to establish the most compelling end benefit for customers and the first to truly embrace advertising pre-testing – and it’s still one of the largest advertisers in the world.
Bernoff’s statement was controversial, not the least because few agree on what constitutes – and therefore how to measure – referral marketing. Also known as word-of-mouth (WOM) and buzz marketing, it incorporates social media (Facebook, Twitter et al) and there’s no doubting its popularity right now. It even has its own professional body, the Word of Mouth Association, boasting members of the US corporate elite, plus a plethora of consultants and research agencies backfilling the hype with real stories of success.
The growing popularity of referral marketing is partly due to the simple fact that most of our conversations remain face to face. Indeed, one estimate by consultancy Keller Fay is that 80 per cent of all brand conversations are held in person and that “the web’s importance is over perceived to be more important than it is due to the ‘hype’ around it”.
Mostly though, referral marketing is popular because people still rely on friends, relatives and trusted advisors for recommendations about what to buy. In a global study, AC Nielsen found 78 per cent of people trust each other more than any other source of communication.
But how can marketers make the most of these simple human realities?
In 2006, IBM published a global report with the Economist Intelligent Unit entitled “The end of television as we know it”. The report posed a simple question – in a changing world how should companies go about doing marketing?
The conclusion was to experiment. “Companies need to allocate 10 per cent of their budget re-inventing old media and 10 per cent understanding new channels.”
There are many experiments with WOM media that Kiwi marketers can benefit from witnessing. We can see three ways in which referral marketing is being applied: organisational, operational and tactical.
Fiskars is a 150-year-old premium Norwegian scissor brand with a strong presence in the US. Inherently conservative, this quality manufacturer faced a major challenge from cheap Chinese imports, which effectively did the same job for less. What value could you place on one pair of scissors over another?
A lot, if you are the right kind of person. It turns out that passionate scissor users are into scrapbooking, the popular hobby of making decorative journals. Fiskars made a bold decision to promote top referrers and strongly associate the brand with scrapbooking. The company initially struggled with idea as “way too left field” so experimented by encouraging a few referrers to do scrapbooking groups.
The experiment worked. The company now organises itself around these top referrers and has hit a jackpot:
- It has a TV channel for ‘Fiskateers’.
- It has 5000 top advocates who promote Fiskars for the company voluntarily.
- Brand mentions for Fiskars are up 600 per cent.
All of this has been achieved in a couple of years, and it started out – as IBM advocated – as an experiment.
JetBlue, the US discount airline, experimented by creating ‘blue days’ at the University of Boston. It started small – with just 16 people turning up dressed entirely in blue clothes, hair, shoes and undies, receiving tickets as rewards. It wasn’t a YouTube-get-all-over-the-web thing. There is only one video on YouTube about it which has been viewed about 200 times.
The initiative had such a positive impact on sales purely via WOM that JetBlue has rolled out across the whole US, thanks in part to its success in Boston.
Other companies have used WOM to launch sampling experiments, sometimes called ‘buzz’. One specialist company is BzzAgent, which sends trial products to groups of agents who then report back on how many conversations they have with people about the product and why. The agents aren’t paid – they are in it to ‘look good’. Oral-B used BzzAgent to supply 600 agents in Atlanta. Each agent told eight people. On average, non-agents tell two people and it normally goes on for five cycles. Let’s do the maths. The cost was placing the product with 600 agents with a ‘fancy’ pack. The number of ‘meaningful’ WOM conversations with the right target is as follows:
- 600 agents x 8 conversations = 4800 WOM conversations
- Wave 1: 4800 conversations x 2 = 9600
- Wave 2: 9600 conversations x 2 = 19,200
- Wave 3: 19,200 conversations x 2 = 38,400
- Wave 4: 38,400 conversations x 2 = 76,800
- Wave 5: 76,800 conversations x 2 = 153,600
Oral-B was reportedly “delighted” with the results.
From a NZ perspective the key lesson is that these case studies support what IBM are saying:
- You can start by tracking WOM flowing from product placement and see its power for yourself.
- You can then choose to do a small-scale experiment to tune into top referrers who are encouraged to talk more because of your support for and attention to them.
- You can then choose to deploy full referral marketing ‘technology’ to create a self-generating, growing referral network that delivers sales with less effort.
So why is no one using referral marketing in NZ and where do I start?
There are various reasons why referral marketing has been slow to catch on here. The first is that mass media is relatively cheap compared with the US. The second is the perception that you can reach 4.1 million Kiwis relatively easily. The third reason is, according to recruitment consultants and older Kiwi marketers, the standard of marketers in NZ is falling due to globalisation – “there are more and more managers in NZ and fewer marketers.”
However, the key reason suggested by the Marketing Association’s experiment is simply this, people don’t know about referral marketing. Furthermore, they don’t know where to go to learn about it.
1. WOM is as old as the hills.
This is a half myth. As NZ Lotteries’ chief executive Todd McLeay said, WOM, or more particularly referral marketing, was marketing. However, WOM can have a positive or negative impact on the brand. The implication behind this comment is that marketers understand the ‘science’ of WOM, but we have learned the majority of Kiwi marketers have not heard of it. Northeastern University in Boston specialises in that science and it is filtering down to the corporate world.
2. You can’t measure the ROI on WOM.
This is a key myth – “I can’t track it so I can’t justify it”. The reality is WOM is the most transparent of all marketing channels. According to WOM marketing author Andy Sernovitz, the key tracking device for ROI on any WOM initiative is sales. In the case of reputation management, it’s about tracking positive or negative mentions. You can set other metrics – such as volume of email enquiries during WOM – and software exists to track conversations. The key is to match the metrics against your objectives.
Here is the crucial data. One out of every three referrals leads to conversion and purchase. By contrast, commercial messaging delivers a purchase one out of 30,000 times and direct mail around 10 per cent. On that basis it’s commercially irresponsible to ignore this ‘new-old’ medium.
3. WOM ‘just happens’, it cannot be controlled.That’s true, however, WOM can be amplified to your advantage. It can increase the number of discussions around your product or your communiation and enhance the power of your existing marketing activity.
The science around that amplification is all about genuine engagement of top referrers. At its most basic, if you are already a fan of something and then you feel valued by that something you’ll talk more about it – in fact, twice as often on average.
4. WOM’s real name is ‘buzz or viral’ – it’s here today and gone tomorrow.
Viral ads can deliver ‘spikey’ buzz. Witness the Cadbury ads. But buzz is a subset of WOM. Referrals are driven by many media – face to face, web, email, sms or viral ads. As Richard Stevens, head of marketing at Fisher & Paykel explains, its easy to let the “tools drive the strategy rather than the other way around”.
True referral marketing is about a system that drives WOM on an ongoing basis, not just a one-off buzz.
5. Attempts to ‘control’ will be seen as inauthentic and therefore backfire, so your best bet is to do nothing.
Joseph Jaffe, in his book Join the Conversation, conducted a survey of US marketers. He found that over half felt that within the next five years most of their budget would be spent on ‘conversations’ with customers. The main barrier was this – what if I start the conversation and they start bagging my company?
The risks are lower than you think. First, WOM is the most authentic form of referral possible. Second, if you speak to people who are enthusiastic about your brand in the first place they will feel involved and talk more.
People are going to talk badly of you anyway – why not amplify the good conversations and learn how to control WOM?
6. WOM is inappropriate in a recession – retention is key.
If you engage champions correctly they can be used as a force for retention. What is the alternative? As Seth Godin outlined in his landmark book, Permission Marketing, traditional marketing is much like going on hunt for a date. Put on your best suit and shoes, walk into a bar and talk to everyone there. If you don’t get a date it must be because the shoes (the creative) are wrong. Actually, maybe the process of dating is wrong, and marketers should think about courting.
If courting people is part of your culture, then you are more likely to retain them. True referral marketing is the ‘science of courtship’, a science of retention.
7. There is no science to WOM and no commercial case studies to justify its use.
This may be true in New Zealand but there is a host of commercial examples to be found online. And there are plenty of happy accidents. A celebrated example is that of Fisher & Paykel’s dish drawer, which spread initially in New York thanks to Jewish housewives raving about its usefulness for separating dairy and meat dishes. The science of WOM is about how you can generate ‘accidents’ through genuine interaction with your top referrers.