On Innovation

Irfan Kamal July 1st, 2008

If you’re not already using word of mouth campaigns for new product/service launches because of uncertain ROI, you need to read this! Research recently released by word of mouth companies BzzAgent and ChatThreads suggests that word of mouth may be measurably more effective than one of the current gold standards for online sales conversion: search engine advertising.  Furthermore, word of mouth campaigns may be 20-60% more cost-effective for branding than other media. Read on for details.

Intent to Purchase / Sales Findings

BzzAgent’s research shows that intent to purchase among participants in word of mouth campaign conversations ranges from 10-15% depending on the sector (people apparently love talking about food & candy):

Assuming that BzzAgent’s intent-to-purchase numbers are roughly similar to observed purchases among participants (or even assuming a 50% attrition), purchase rates are much higher than would be expected in typical search ad campaigns.  For example, if you assume a 3% sales conversion rate for traditional search ads, we’re looking at a conversion rate that’s at least 2-3x better than search ads.

In its research findings on Conversation Value, ChatThreads reports actual purchase among participants in a low-involvement consumer packaged goods (CPG) campaign to range from 35% among first generation participants to an estimated 16% among 3rd generation participants.

The research reports about a $0.30 cost per converation, resulting  in a word of mouth cost-per-action/sale (CPA)  of about $2-3 per sale using word of mouth in this example. It’s unclear how this data will be affected when the campaign is scaled up substantially (see below).

Brand Recall / Awareness Findings

Interestingly, BzzAgent’s research also shows that word of mouth may be cost effective for branding - when compared to other forms of branding, BzzAgent’s current data suggests word of mouth costs would be 20% (compared to print) - 60% (compared to television) less expensive in generating a specific level of brand/ad recall.

Important Caveats: (1) Scale and (2) Interest and Relevance

It’s entirely possible that scaling up word of mouth will prove to be much more difficult and expensive than, say, scaling up an online search ad purchase; that is, the incremental cost of generating an additional conversation may be substantially higher than the incremental cost of an additional online ad.

Also, creating word of mouth requires a genuinely interesting product or service that is relevant to the targeted audience.   This particular problem doesn’t strike me as unsolvable with the right approach - it does require exceptional execution in choosing and targeting marketed products carefully to ensure interest and relevance.

Overall, these are exciting preliminary findings that should be of substantial interest to marketing and media executives.   It would be great to have a viable alternative to Google search ads, so I’m personally rooting for these findings to hold up over time.

Credits

Chart reprinted with permission from BzzAgent Inc.  Thanks to BzzAgent’s Matt McGlinn and Joe Chernov, and to Dr. Walter Carl at ChatThreads for background information.  Conversation Value is a trademark of ChatThreads

Tags: Metrics, Social Media, Strategy

• Metrics , Social Media , Strategy
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