The most effective word-of-mouth practices are poorly understood. But surprising new research from YCCI reveals that making information difficult to get may be a good marketing technique.
Swedish streaming music service Spotify hit U.S. markets with a limited launch in July of 2011. Invitations to start an account were difficult to obtain. People began to talk about the website. The talk spread until, suddenly, talk became buzz. Four months later, with almost no presence in formal advertising channels, Spotify boasted four million users.
The lesson? Word of mouth is a powerful marketing tool.
McKinsey & Company figures that word of mouth is the “primary factor” behind 20 to 50 percent of all consumer purchase decisions. The analytics firm MarketShare found that a 10 percent increase in word of mouth (both online and offline) boosted sales up to 1.5 percent. But why it works—what makes for effective or ineffective word of mouth—remains an open question.
Exclusivity is the velvet rope. Everyone wants to be special enough to be on the right side of it.
One proposal recently set forth by Arthur Campbell and Jiwoong Shin (@j_woongs) of the Yale School of Management, with Dina Mayzlin from the USC Marshall School of Business, emerges in their paper “Managing Buzz.” The authors use a behavioral model to examine what might motivate consumers to engage in word of mouth. Working from the psychological notion of self-enhancement, in which people strive to demonstrate a trendy expertise—‘have you heard about Spotify?’—a product’s exclusiveness becomes integral to word of mouth. “Exclusivity is the velvet rope,” they write, quoting David Balter, founder of the marketing firm BzzAgent. “Everyone wants to be special enough to be on the right side of it.”
When word of mouth’s value is viewed this way, through its exclusivity, Shin and his colleagues uncover an interesting tension with two well-recognized marketing principles: the benefit of advertising and the value of connecting with opinion leaders, or “influentials.” Both advertising and connection with opinion leaders are designed to make products or services a household name; but what if the willingness of people to take part in word of mouth comes equally from the fact that a product or service is not a household name?
In the case of advertising, Shin and his coauthors find that popularizing a product undermines its social value and “crowds out the incentives” to engage in word of mouth; the power of exclusivity evaporates. They offer two workarounds. First, firms can selectively release information well prior to product release, allowing time for word of mouth to bloom before full-fledged advertising campaigns roll out. Second, firms can make announcements or advertise through niche channels. Spotify, for instance, offered registration through Twitter. Knowing or talking about Spotify thus came to ‘signal’ a measure of tech-savviness: I know about Spotify because I use Twitter and am therefore tech-savvy.
Popularizing a product undermines its social value and “crowds out the incentives” to engage in word of mouth.
A similar conflict arises around opinion leaders. A growing realm of market research emphasizes the role of key individuals on the spread of information; if firms find the right nodes, then they are able to reach a broad pool of people with relatively few resources. However, if word of mouth’s effectiveness can also be tied to the exclusivity of information, then these two strategies raise a confounding question: does the broad diffusion that opinion leaders promise outweigh the potential value of word-of-mouth campaigns that restrict the flow of information? Which approach is more effective?
Generally, the insight from this research contradicts the straightforward intuition that wider exposure to product information will lead to more word of mouth and, thus, more people made aware of a particular product or service. In fact, it may sometimes be advantageous for firms to limit access to information and that way transform it into a social signal. This will motivate people to take part in word of mouth; it will turn talk into buzz. As Shin and his coauthors put it, an effective word-of-mouth effort “is as much about who does not have information as it is about who does.”