Word-of-Mouth and Referral Marketing Blog

Demystifying Word-of-Mouth Advertising – Why Customers Talk [SlideShare]

You know word of mouth is effective, but do you know how it works? We love how Brand Autopsy’s article “Ernest Dichter on Word of Mouth Marketing” explains the process, so we distilled the key points of the article with illustrations and statistics. Enjoy!

Who is Ernest Dichter, and why is his work Important?

Ernest Dichter, the ‘father of motivational research’, was a trained psychologist who applied his expertise to become a published author and a marketing expert.

In 1966, the Harvard Business Review published an article titled “How Word-of-Mouth Advertising Works”. It passed largely without notice at the time, but it delved into powerful concepts around brand messaging and advertising, including the mechanisms behind how brands could generate word-of-mouth.

Dichter borrowed techniques from psychology like in-depth interviews and observational research, and he may have been the first to coin the term ‘focus group’.

He knew a thing or two about the motivations of consumers and how to advertise to drive sales. His recommendation that Chrysler advertise in women’s magazines was highly successful – because he identified that women had strong influence on men’s purchasing decisions.

Interesting! So, how does Word-of-Mouth Advertising Work?

Dichter saw advertising messages as falling into one of two categories:

  • Overly pushy messages that were “more a sales tool than information and guidance” – Dichter remarked that consumers were likely to feel threatened and recognise the “cold commercialism” of the message, and thereby reject the claims
  • Warmer, more human messages where the advertiser spoke like a friend – With a softer message, the consumer was more likely to relax and accept the recommendation in the ad.

Written almost 52 years ago today, it’s strange that some brands still seem to have missed the memo.

By humanising the brand and offering value to the consumer, Dichter argued, the consumer was not only more likely to be receptive to the advertising but also more likely to share about the brand. In three sections below, we break down his research into three sections:

  • Why Customers Talk (And Share Word-of-Mouth With Other People)
  • Who Customers Listen To (and Why They Listen to Them)
  • Why People Act on Word-of-Mouth Referrals (and why Referrals beat Advertising)

Psst. If you want more, definitely check out our Comprehensive Guide to Word of Mouth Marketing!

Why Customers Talk (And Share Word-of-Mouth With Other People)

Word-of-mouth referrals are a 3 step process:

  1. Alice talks about it
  2. Bob listens to Alice
  3. Bob acts on the referral

Why do customers talk?

  1. Personal experience
    • “It is talk about the product which confirms for the speaker his ownership and joy in the product, or his discover of it.”
    • “49% of participants in an NYT study said they shared to inform others of products they care about and to potentially change opinions or encourage action”
    • Crossfit ballooned from 13 gyms to 7,000 without traditional advertising, in just 9 years
  2. Self-confirmation
    • Eg. showing connoisseurship, having inside information, spreading the ‘Gospel’ by converting the listener to use the product
    • Independent musicians now collectively control 34.5% of the music industry, more than any major label (NY Post)
  3. Being Nice
    • Tupperware parties -> $2.3b annual revenue
  4. Influenced by Advertising
    • “Since it is difficult for consumers to avoid exposure to advertising, many people have turned to accepting it for its independent attraction and entertainment value. Thus entertainment value and originality of ads have become topics of talk.”
    • Old Spice’s “The Man Your Man Could Smell Like” campaign increased Twitter followers 2,700%, Facebook fans 60%, YouTube followers 150%, and most importantly– 107% increase in sales

 

Who Customers Listen To (and Why They Listen to Them)

In short, there are 4 broad categories of people that customers listen to:

  1. Industry Experts
  2. Celebrities
    • Michael Jordan
  3. Closest Ties
  4. Knowledgeable, Passionate Fans

The deck below digs into the details:

What should you take away from all that, as a retailer?
  1. The biggest question you have to ask is: “Who are my customers listening to?”. Identify the existing influencers. How did they learn about your business?
  2. Break them down into the 4 categories. Look for patterns and similarities. Is there any noticeable gap? Are you overlooking anybody?
  3. Evaluate what you’ve been doing to deliberately reach out to each of those groups.

Understanding who these influencers are and what their motivations are for sharing will help you ultimately get more shares.

Why People Act on Word-of-Mouth Referrals (and why Referrals beat Advertising)

In short, there are 4 reasons why customers act on a referral:

  1. Authentic Passion
  2. Genuine Compassion
  3. Actual Proof
  4. Semblance of Secrecy

The deck below digs into the details:

  1. Authentic passion
    • “The real meaning of a product and of its effects to the user is revealed not only through the choice of the speaker’s words, but also through the discharge of emotions in inflection, face, body expressions and gestures.”
    • TOMS one-for-one campaign – over 10 million pairs of shoes donated
  2. Genuine compassion
    • “That the speaker is genuinely concerned with the listener’s well-being or has his advantage at heart becomes eminently believable in cases in which the recommendation is geard to, and takes into account, the individual needs or special circumstances of the listener.”
    • 70% of Amazon’s homepage are product recommendations
  3. Actual proof
  4. Semblance of secrecy

As a Retailer, what can you take away from “How Word-of-Mouth Advertising Works“?

Word-of-Mouth Advertising works. If you’re looking for proof, Jonah Berger (almost 50 years later) identified 6 key elements for why things catch on, memes stick in the mind, and people talk to others like a virus. (We identified the six elements with six viral ads in a separate blog).

As an eCommerce retailer, your main take-aways are:

  1. The biggest question you have to ask is: “How are my customers making referrals?”. Identify what’s working.
  2. How can you help your customers make effective referrals? Making it easier to share, offering incentives, and so on.

Understanding the motivations behind acting on a referral will help to attract more customers.

Two factors for success we’ve found at ReferralCandy is offering incentives to make referrals, and making it easy to share on social networks. You need a referral program, and we’re great at that. Set up your referral program in just minutes here.

Jon Tan

My coffee expenses and my office rental are one and the same.

Terrified of mathematics and carbohydrates.

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