How to Measure Word of Mouth Marketing, One Hamburger at a Time
Ronald and Wendy each try a burger from the new shop down the street. Cooked to the perfect temperature, on a toasted bun, with cheddar cheese, crisp vegetables and served with seasoned fries. They each tell two friends who also try the burger. Those friends each tell two friends. Suddenly, the burger joint is the most popular spot in town. All thanks to word of mouth (WOM).
The irony behind advertising’s holy grail of consumer adoption is that most marketers cannot influence it at all. This is because WOM is not a function of marketing. It’s a function of product quality. The burgers were talked about, not because of an advertising campaign, but because they were superior burgers.
The vast majority of marketers have no influence on product development in an organization, and consequently, no concrete way to leverage WOM.
But is WOM all it's cracked up to be? Can we measure its efficacy against other forms of marketing? How might we empower marketers to influence WOM marketing to shape consumer behavior?
How Effective is Word of Mouth? What Do the Studies say?
Multiple studies have concluded WOM Marketing is by far the most effective method of advertising.
92% of consumers trust recommendations from a friend (source: Nielsen)
WOM drives 4-5x more sales than paid media. (source: Impact, Forbes)
64% of marketing executives consider word-of-mouth to be the most effective form of marketing (source: American Marketing Association, AMA)
Yet, only 6% of marketers claim they have mastered WOM Marketing. (source: American Marketing Association, AMA)
Empirically, these findings make sense. We trust the opinions of our friends and family the most. Certainly more than a 30-second TV ad, product placement, or a Kardashian. A recommendation from an impartial source carries more weight than a self-interested company sponsored ad.
However, these numbers fail to identify exactly why WOM is so much more effective. Nor do they provide any concrete analysis of how much more effective WOM is. The answer lies in every communications student’s ancient enemy… math.
The Formula to Measure Worth of Mouth Effectiveness
Calculus is the mathematical study of change. In our case, how fast word spreads from one person to another. Fear not communications majors, we crunched the theoretical numbers for you. The formula is below.
∞
Σ = T or the number of initial trials × V or the avg. number of people told^n
n=0
Or written simply as…
∞
Σ = T x V^n
n=0
Here’s how to read the formula; a calculus 101 reminder:
Σ = a mathematical notation for sigma, the sum of functions. In our case, we must add the functions together to find all the people who know about a product. Each new round of word of mouth spread adds to the previous people who already know about the product to give us total reach.
T = the number of initial trials you start with. Your initial testers. The first burger tasters, Ronald and Wendy.
V = the average number of people they tell. This is a function of product quality. Namely, the velocity at which word travels. How good your product is will change the average number of people told from each trial.
N = the time elapsed or iterations that are then summed to arrive at your answer. N starts at 0, then n= 1, n = 2, n = 3, and so on. Add all these up to arrive at the answer.
For those of you who process verbally, here’s an example using our hamburger lovers, Ronald and Wendy.
Ronald and Wendy each try the new burger spot (T = number of initial trials). The burger/product quality is so exceptional that they each tell 2 people (V= WOM velocity). After three rounds (n), how many people know about the new burger spot? Here’s the formula with the numbers plugged in.
Σ = 2 (T) x 2 (V) ^3 (n)
n=3
Did you do the math? We can visualize the spread of burger mania in our diagram below. The matrix shows how the burger spreads via WOM as each person goes on to tell another two. Count the total number of burgers and you will arrive at the answer.
From just Ronald and Wendy, after only 3 rounds of WOM, 30 people now know about the new burger spot. 30! The nature of the formula reveals why WOM marketing is so powerful… this is because word of mouth marketing is exponential, meaning the rate of growth increases as time progresses. Therefore, successful word of mouth marketing is an exponential increase in market penetration.
To fully comprehend the scope of exponential growth, we graphed our example below. In the example, market penetration increases exponentially as more and more people discover the burger. After only 10 rounds 4,094 people will know about the new burger shop around the corner. 4,094 hungry patrons from 2 initial burger lovers.
This is the power of people telling people. Exponential market growth.
Comparing Word of Mouth Marketing to Media Spend
Now say the same burger shop runs a radio or TV ad that reaches 200 unique people for each placement. Assuming each person reached by the ad is unique and recalls it completely, is word of mouth still king? The graph below outlines the two.
The chart reveals a telling distinction for each marketing form. A media buy provides immediate reach against an audience, but does not have the same efficacy over time. This is because a media buy is a linear function. A media buy can be expressed as the function below:
Marketing Penetration = Reach x Ad Placements
Each media buy reaches an incremental group of people. This creates a straight line of growth from 0 to the total reach of the campaign, depending on the number of placements and number of people reached per placement. Given enough time, the exponential nature of word of mouth will always surpass any amount of linear advertising spend. This is because WOM’s rate of growth increases over time, while a media buy remains constant.
All things being equal, word of mouth will eventually outstrip any amount of advertising spend. The only factor is time. This is why markedly better products gain market penetration against their peers, despite large incumbent media spends. That’s the power of exponential growth. That’s the power of word of mouth.
The findings also highlight an important point, much to my personal chagrin as an adman; product is more important than marketing. This is clear from the fact that the variable WOM is a function of product quality while the initial trials are a function of marketing.
In sum: A poor product marketed brilliantly will fail faster. A great product with no marketing will catch on eventually. A great product marketed brilliantly will take over the world.
The solution? Make a better burger. Then market the hell out of it.
P.S.
I’d like to thank James Malke, ex-JP Morgan Chase analyst, Columbia MBA, accomplished Spanish guitarist, music theory expert, and dear friend for checking my math and working through this formula with me. You inspire me every time I talk to you.
In the next post, we’ll dive into the levers marketers can use to influence word of mouth marketing and examine how marketers can collaborate with product departments for better results.