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THE POWER OF WORD OF MOUTH

Adding Social Media


to the Marketing Mix
By GUILLERMO ARMELINI and JULIN VILLANUEVA

ntil recently, when you wanted to


publicize your company or its products, you would launch an advertising campaign in traditional media,
engage in some corporate communications
and PR, and run promotions and point-of-sale
activities. Savvy marketers would add online
advertising and might even try to monitor their
online positioning and Web traffic through
search engine marketing (SEM) and search engine optimization (SEO).
Now, with the emergence of social networks, such actions seem almost quaint.
These days, you dont even exist in consum-

ers minds unless you chat with them on Twitter, have followers in Facebook or publish a
blog. Using Gross Rating Points (GRPs) to
measure your advertising impact is so last
century; what matters today are how many
likes youre getting. Advertising agencies
are touting creative new apps, which they say
will help you keep customers.
Some say we are witnessing a revolution
that will change the way we do marketing;
that social network marketing has made traditional advertising obsolete. But before we
get too carried away by the hype, we need to
examine the evidence.

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The Rise of All Things Social

Redening the Mix

In a very short time, social media have captured market share and attention among all
kinds of consumers and companies. According
to ComScore, 84 percent of European Internet
users belong to at least one social network, and
the number of visitors to social networking
sites is growing by the month, reports Nielsen.
To give an idea of just how quickly, in April 2010
social media were being used by 24 percent more
people than in April 2009, while hours spent per
user was up 66 percent.
Because social networking requires time and
active engagement, it competes directly with
traditional media for share of consumption and
attention. Part of the time people used to spend
on traditional media is now being spent on social media. Given this change in consumption
habits and the fact that social media are more
interactive, there is a danger that messages sent
using traditional advertising will fall at.
Take the Oscars: The 2011 Academy Awards
counted four million fewer viewers than the
previous year, especially among 18 to 49 year
olds, whose audience share dropped 12 percent.
Meanwhile, hundreds of thousands of Twitter
users broadcast their impressions of the ceremony live. Quite simply, many viewers preferred to interact through social media, sharing
their thoughts, opinions, criticisms and suggestions. They wanted dialogue, not a monologue
delivered from the stage.

Research has highlighted the fact that a product


or service being talked about has a direct impact
on sales. Movies are one of the best illustrations
of how word of mouth, or WOM, aects sales,
given the key role that personal recommendations play in getting potential spectators to actually go to the theater. Even the Oscars are essentially a sort of movie industry WOM. Simply
being nominated for an Oscar never mind actually winning it generates more audience and
more revenue. This signaling eect is now being
reinforced and amplied by social networks.
Based on movie releases, we carried out a
study to measure the impact and interrelationships of three key variables on movie success:
advertising investment, publicity (i.e., media
presence without prior payment) and the
conversations generated among potential
and actual spectators.
One of our conclusions was that WOM
about a movie in social networks always has a
positive impact on box-office revenue. Even
more surprisingly, the impact turns out to be
independent of advertising investment.
Given this reality, many companies have
started to redefine key aspects of their marketing mix to include social media, adjusting their budgets accordingly. According to
Burson-Marsteller, 79 percent of the top 100
Fortune 500 companies already use Twitter, Facebook, YouTube or corporate blogs
to communicate with their customers. Twothirds have at least one account on Twitter,
which is the platform most used by companies. And 54 percent have a Facebook page.
The digital marketing and media research
group, eMarketer, estimates that global advertising investment on social networks will
top $6 billion in 2011 representing almost
9 percent of all Internet marketing rising
to almost $10 billion in 2012. In the United
States, social media spending now accounts
for close to 11 percent of the online marketing budget and is expected to represent even
more in 2012.

EXECUTIVE SUMMARY

Social media have rapidly


gained share and attention
among all kinds of consumers
and companies, often at the
expense of traditional media.
Recognizing this, companies
have started to redene key
aspects of their marketing mix.
With advertising and online
word of mouth competing for
shrinking marketing budgets,
many companies regard having
an active presence in social
media as a viable alternative to
traditional advertising.
Yet the authors believe this
would be a mistake, as the two

strategies are complementary


rather than substitutive. A
comparison of advertising and
word of mouth shows that social media obey very different
rules from traditional advertising. Social media can start
conversations or build brand
recognition, but the results are
much more difcult to predict
or measure. With that in mind,
the authors recommend how
to dene a social media plan,
citing examples of companies
that got it right and offering
cautionary tales of those that
got it wrong.

An Alternative to Advertising?
Maintaining an active social media presence
is commonly considered an alternative to traditional advertising as a means of achieving
brand awareness. In our view, this is a mistake. Facebook, Twitter and other microblogs

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TABLE 1

Word of Mouth
Versus Advertising
SOCIAL NETWORKS SERVE A DIFFERENT YET
COMPLEMENTARY FUNCTION IN RELATION TO
CONVENTIONAL ADVERTISING.

WORD OF MOUTH

ADVERTISING

RE ACH

Q

CRE D I BI L I T Y

Q

CO N T RO L

Q

I N T E RACT I V I T Y

Q

I N T RUSI V E N E SS

Q

Voluntary and consensual

Q

COST

Q

Low, though some hidden costs

Q

B RA N D

Q

Q

SA L E S

Q

Q

Q

P RO D UCTS &

Q

SE RV I CE S

Q

CO N T E XT

Q

Limited (though that is changing with


e-WOM)

Q

High/Mass market

High

Q

Limited

Stimulated, but not controlled

Q

e-WOM is highly interactive and


immediate

Positive WOM enhances brand value,


but no guarantee that comments will be
favorable
Negative WOM can do serious damage
Changes attitudes that may guide
consumer behavior

Proven correlation between conversations


and sales

Pull effect tends to last longer


Not very useful with low-risk products or
products that are easy to assess
Fundamental role in consumption of
services
Frequency and intensity seem greater in
more collective, hierarchical societies

Q

Q

Q

Q

Q

Q

Q

Q

Q

Full control over message, medium


and frequency
Less scope for reaction or subsequent
adjustment
Message may be annoying, in content or
frequency
High, among the most expensive
Decisive role in awareness and
recognition

Increases value
Shapes attitudes toward the product and
stimulates interest in trying it

Low elasticity of sales in the short run, but


impact on rm value and consumer price
sensitivity in the long run
Duration of pull effect is disputed
With tangible products, informs of their
existence and quality
With services, plays a more persuasive
role in terms of providing information
Works in all cultures, though each is more
receptive to certain strategies

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function more like a caf than a billboard:


People interact to chat or comment about
products or services, not just receive corporate messages. A Facebook banner functions
as advertising space, but a corporate Facebook page, or a Facebook page for fans of the
company, do not.
Also, social media obey very different
rules from traditional advertising. A company can use social media to start conversations
or build brand recognition, but the results are
much more difficult to predict or measure.
Here we explain the main similarities and differences between traditional advertising and
WOM (summarized in Table 1).
REACH. Advertising in conventional media has

high and potentially massive reach, while traditional WOM based on one-to-one communication is limited by nature.
However, the rise of social networks is
radically transforming the pattern of social
interactions, including personal recommendations. Recommendations are no longer
limited to one-to-one interactions between
personal acquaintances. Now, hundreds of
thousands of people can conspire to put a
companys reputation, brand or product on a
pedestal or drag it through the dirt.
Uniqlo, a Japanese fashion firm, selected

ABOUT THE AUTHORS

Guillermo Armelini is a
professor at ESE, the business
school of the University of
the Andes, and a researcher
in the elds of e-business,
new technologies and
electronic marketing at
various universities. Holding
a Ph.D. in management from
IESE and an MBA from ESIC
Business & Marketing School,
his main areas of interest and
research are nontraditional
media, such as word of mouth
and social networks, diffusion
of innovation, customer
value estimation, loyalty
management and interactive
advertising.

Julin Villanueva is head of


the Marketing Department
at IESE. His specialties
include online marketing,
marketing research, brand
management and product
positioning. He earned
his Ph.D. in Management
from UCLA (University of
California, Los Angeles) and
he has an MBA from IESE
and a degree in Economics
from Complutense University
of Madrid (UCM). As a
consultant, he has worked
with numerous companies on
projects ranging from market
studies to general marketing
strategies.

10 items of clothing that were due to go on sale


in its stores in the United Kingdom. Whenever a user sent a tweet about one of them, the
price of that item went down. The campaign
was such a success that Uniqlo briefly found
itself as one of the worlds top 10 most tweeted about companies and a worldwide trending
topic a rare feat for a retailer. When this happens, the impact of a social media campaign is
unparalleled.
CREDIBILITY . Not even the best advertisement
can match a personal recommendation in
credibility. WOM is almost unbeatable in its
power to influence and persuade. Large companies and brands that have built empires
on their reputation know this only too well.
Examples include not just Google, Amazon,
eBay and other big Internet players, but many
other firms whose businesses are not directly
Web-related, such as Zara, Mercadona and
Starbucks.
Obviously, an anonymous advertising
message does not have the same credibility
as a recommendation from someone we know
and trust. According to InSites Consulting,
38 percent of social network users pointed to
other consumers as the most reliable source
of information about a brand or product.
Surprisingly, the next most popular option,
chosen by 32 percent of respondents, was the
brand itself. At the bottom of the list were
journalists (7 percent), marketers (3 percent)
and other brands (1 percent).
CONTROL . In conventional advertising, advertisers always have full control over the message they want to convey. They can decide
what their advertisement will say, how often
it will say it, in what way, to what audience and
in what circumstances. WOM is different in
that it cannot be controlled.
Dove, for example, launched a video
marketing campaign with the stated aim of
combating stereotypes of female beauty and
enhancing girls self-esteem. Talk to your
daughter before the beauty industry does
was the slogan. Despite its politically correct message, there was nothing the company could do to quell the flood of conversations questioning its legitimacy, given that
the parent company, Unilever, also manufactures products known for their sexist

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The fact that most social media platforms are free does
not mean that your communication strategy will be
free. In fact, e-WOM requires a sustained commitment
of time and staff.
advertisements, such as Axe deodorant. Nor
was it able to stop Greenpeace from using a
parody of Doves YouTube campaign to protest against the use of palm oil in Dove products, suggesting that palm oil production was
a factor contributing to deforestation in some
parts of the world.
The takeaway is that you can get people
talking about your product, but you cant control what they say.
INTERACTIVITY. Online word of mouth (e-WOM)

has one major advantage over advertising: It


is immediate and interactive, and that makes
it easier to intervene. If a campaign goes off
the rails, you can adjust it as you go along. You
can try to deflect negative feedback by joining
in the conversations or making amends.
A case in point is what the media dubbed
Dell Hell. Computer giant Dell failed to respond to a complaint by a user who was unhappy with the after-sales service, setting off
an avalanche of comments by thousands of
disgruntled users. As a result, the company
took a hit to its reputation and lost millions
of dollars.
Yet Dell showed it could learn from its
communication crisis and is now held up as a
shining example, both for its good practices
in customer communication, response and
service through social networks, as well as for
its success in monetizing its Web 2.0 strategies. Dell estimates that customers who have
come to their site via Twitter have earned the
company millions of extra dollars a reported
$1 million in six months of 2009 alone.
INTRUSIVENESS . From a consumers point of
view, a fundamental advantage of WOM over
advertising is that it is voluntary and consensual, whereas advertising because of its content or frequency can be annoying and intrusive. So far this has not been the case with
e-WOM, though it remains to be seen how

things evolve. After all, e-mail was not considered a nuisance until someone invented
spam. There is always the risk of saturation
or causing a nuisance if the messages sent
through social networks are not carefully
measured.
COST . In a cost comparison, we might expect
WOM to win hands down over advertising.
But its not that simple. Traditional WOM
may be relatively inexpensive, but if a company wants to use social networks to get people
talking about a brand or product, it will have
to put up the necessary resources. The fact
that most social media platforms are free to
use does not mean that your communication
strategy will be free. In fact, e-WOM requires
a sustained commitment of time and staff.
BRAND . Advertising has shown that it can increase the value of a brand by enhancing the
brands image, reputation and recognition.
At its best, WOM can do the same. But there
is no guarantee that users comments will be
favorable. Positive WOM enhances brand
value, but negative WOM can cause serious,
even irreversible, damage to a brands reputation and sales.
Advertising plays a key role in achieving
brand recognition, whereas, as things stand
today, WOM has very little to contribute in
that respect.
SALES .

Empirical evidence suggests that the


elasticity of sales in response to advertising
is rather low in the short run, but that advertising does affect brand value and consumer
price sensitivity in the long run.
In contrast, our research shows that the
volume of conversations about a product is
directly and immediately correlated with
sales positively or negatively, as the case
may be.
Furthermore, the duration of advertisings

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Blockbuster Marketing

e recently researched
movie releases to see to
what extent e-WOM acts as a
complement to, or substitute for,
conventional advertising.
The goal was to determine the
interrelatedness of three variables that are key to the success
of any movie during its release:
advertising investment, publicity
(i.e., media presence without prior
payment) and the conversations
generated among potential and
actual spectators through online
word of mouth (e-WOM).
We used a random sample of
272 movies released between
2002 and 2006 that made it to
the top 25 in the United States in

terms of box-office receipts.


Our main findings were as
follows:
ADVERTISING/PUBLICITY. There is
a close and direct relationship
between the level of advertising
investment by movie studios, production companies and distributors,
and the level of publicity (i.e., media
coverage) that their movies achieve.
The greater the investment in advertising and promotion, the greater
the presence in the press, and thus,
the greater the impact on potential
spectators.
PUBLICITY/E-WOM. There is no
direct relationship between the

pull effect is disputed, whereas the effect of


WOM appears to be more lasting.
PRODUCTS AND SERVICES. Some products and services naturally generate conversations, while
others simply are not talked about. A curious
fact we have observed in our research is that
people are more inclined to talk about things
they purchase rarely and use publicly, such
as holidays or cars, whereas things they buy
regularly and use privately, such as toothpaste
brands, are barely mentioned. This is a key factor when deciding whether or not an e-WOM
initiative is appropriate.
Another point to consider is how tangible
the thing you want to promote is. If you are promoting a product, advertising can provide information, so that people learn about the product and become convinced of its quality. When
it comes to services, information tends to be
more subjective and designed to persuade.
Where intangible or higher-priced goods
are concerned, WOM can help to reduce the
risk associated with such subjectivity. A recommendation or review from a fellow consumer is, therefore, a great help to the potential buyer.

level of advertising spending and


the level of e-WOM generated by
a movie. There is some positive
correlation, but normally it arises
indirectly: Advertising boosts
a movies media presence, and
media presence stimulates conversations in social networks and
forums.
E-WOM/REVENUE.

The level of
e-WOM directly influences boxoffice revenue, independent of the
level of advertising investment.
The fact that people talk about a
particular movie, even if no money
has been spent on promoting
it, always affects the number of
people who go to see it.

In contrast, more tangible, lower-risk or


lower-cost goods, whose quality can be assessed prior to purchase, are less likely to
generate WOM.
CONTEXT .

How much WOM is generated will


also depend on the context in which the communication takes place. Whereas advertising
has proven effective in all kinds of cultural
and social environments, WOM appears to
behave differently among different social and
cultural groups.
The frequency and intensity of WOM
seem to be greater in more collective, hierarchical societies those with greater power
distance. In countries with greater social inequality, the social contagion effects for innovation tend to feature more.

The Budget Wont Stretch


In times of financial difficulty, companies
naturally try to exploit the benefits of endorsement through social networks. Many
boards of directors are asking their marketing
directors to cut offline budgets in the hope of
increasing returns through new media.
In a small minority of cases, such as the

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Our research shows that the volume of conversations


about a product is directly and immediately
correlated with sales positively or negatively, as the
case may be.
launch of the Subaru XV in Chile, they have
succeeded. Subaru managed to sell more than
300 vehicles and sign up more than 3,000 potential customers in two months by focusing
its campaign on online ads and competitions
in social networks. Everything was achieved
with a third of the investment required for
traditional media advertising.
It is tempting to think that social media are
a low-cost alternative to traditional advertising, for informing and persuading consumers.
However, even though the investment to establish a presence in social networks is relatively small, the cost of generating content is
high, as it demands creativity, time and qualified talent.
Although most marketing experts consider advertising and e-WOM to be complementary, the fact is that the two are competing
with one another for a diminishing budget.

Toward a New Ecosystem


Experience suggests that e-WOM is almost always part of an ecosystem that complements
traditional marketing channels. Pepsi shows
how some companies learn the hard way. In
2010 the beverage maker poured almost its
entire marketing budget into social networks,
where it launched the Pepsi Refresh Project,
spurning the Super Bowl and other traditional marketing opportunities. Despite winning
millions of votes, fans and followers on social
media, Pepsi found itself relegated to third
place in sales in the United States, where it
had always been second.
The lesson to be learned here is that social networks act as amplifiers of traditional
advertising, which remains indispensable in
order to reach the point of sale.
Having said that, many questions remain
unanswered. What combination of advertising and WOM is best? How can WOM reinforce the image of a brand that already has
some recognition in traditional channels?

When, if ever, can WOM be a substitute for


advertising?
As a general rule, advertising and e-WOM
should reinforce one another, as if through
cross-fertilization. Traditionally, all of a companys communications revolved around an
advertisement, usually a television commercial, which determined the image and all subsequent messages. Today, the ad may be the
opening gambit in an ongoing conversation
across platforms or, conversely, a continuation of what consumers have already heard in
social media.
This is what Coca-Cola is doing when it
distributes its Open Happiness message
through a range of channels, from catchy TV
jingles to events at the Coca-Cola Happiness
Institute, sparking conversations that keep
the firm in the top spot in Facebook statistics
rankings.
Clearly, there is no magic formula that
will work for every company. Once a brand
has made a name for itself, it can exploit and
reinforce that recognition through social networks by generating content, offering promotions, and interacting and building trust with
customers through a range of initiatives.
Starbucks has done this by making its
stores a regular Internet access point for users, creating an opportunity for itself to connect with them through promotions and leisure offerings.
Second- and third-tier brands are in a
more difficult position, as there is a danger
they will be ignored. Even so, social networks
represent a golden opportunity for smaller
companies that have no advertising budget.
One such success story is Privalia, which
used e-WOM to build a reputation in what
was then a relatively unknown sector an
exclusive, online social shopping club that
offers top brands at a discount. In this case,
social networks clearly served as a substitute
for traditional advertising. Privalia has more

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than 300,000 friends on its Facebook page in


Spain alone.
In short, for companies that operate exclusively online, or for small businesses that have
no budget for traditional campaigns, e-WOM
can be the perfect alternative. Still, there will
always be companies that need to use traditional channels, owing to the nature of the
product itself, or for some other reason that
would make online promotion inappropriate
for their particular circumstances or needs.
Now that we know what WOM is all about,
we can start to define a social media plan, following a series of recommendations.
1. BE AWARE . Whether you planned it or not,
your brand or product is already being talked
about in social networks. So listen to what
people are saying.
2. DO A BRAND AUDIT. Before you rush out to conquer social networks, analyze your brand or
product to see if it is capable of attracting the
target audience and withstanding pressure.
If, for some reason, you cannot act transparently, if your product is not the kind that
generates conversations or if there are reputational risks, such as a fair chance of generating hostile conversations, then perhaps you
should hold back or keep a low profile.

user participation model, e.g., comments,


surveys; and, above all, the right balance between content (70 percent) and selling (30
percent). First, you inform; second, you entertain; third, you interact; and last, you sell.
6. MEASURE. What metrics will tell you whether
you have succeeded or failed? It will depend
on your goals. If you want to research your
customers, you might look at the number of
registrations, ideas or conversations, whereas if you want to build a brand, you might look
at the number of followers, recommendations or mentions. On the Internet, you need
a variety of metrics, but you have to appreciate that they are likely to be more diffuse than
in traditional channels. In any case, you must
always make sure that the results are proportional to the investment.

Deciding what strategy to pursue is not easy.


The important thing is to remember that, in
social media, the decision does not always depend on us. Often, it is the users and consumers who decide, whether we like it or not.

3. SET TARGETS. Decide exactly what you want to

achieve via the Web. Possible goals might be:


to attract customers; to gather feedback from
existing customers; to build links and mentions, so as to generate traffic to the corporate website; to become an opinion leader or
expert in a certain area; to use the network as
a benchmarking tool; to launch promotions.
4. CHOOSE THE RIGHT MIX. Specify exactly where
you want to be and how you want to get there.
Decide on platforms, profile, message type
and frequency. The most common options are
to create a blog, a Facebook page, a Twitter
account or a LinkedIn profile, but other, more
sophisticated options are available.

TO KNOW MORE
Q

Armelini, G. and J. Villanueva. Marketing


Expenditures and Word-of-Mouth Communication: Complements or Substitutes? Foundations
and Trends in Marketing 5, no. 1 (2010): 1-53.

5. DECIDE ON CONTENT AND TONE .

The content
may be generated by the company itself, by
users or even by employees. You will need
to establish: the type of content, e.g., knowledge, promotions, applications, games; the

Villanueva, J. and G. Armelini. El boca-oreja


electrnico: Qu sabemos de esta poderosa
herramienta de marketing? Electronic Word of
Mouth Project (2007).

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