Word of Mouth: An Inexpensive Way To Drive Exponential Growth

A McKinsey Quarterly Report shows that positive word of mouth has more than twice the impact of traditional advertising. For example, research by McKinsey showed that just one (free) episode of positive word of mouth can generate $200 in additional sales at a restaurant. It also turns out that personal recommendation is the primary factor behind 20 to 50 percent of all purchasing decisions - and that its influence is greatest when consumers are buying a product for the first time.

There are two reasons word of mouth is so much more powerful than paid advertising. The first is trust. We tend to believe recommendations from people we know. We trust friends, acquaintances, and colleagues not just because we know them, but because they have no financial incentive or ulterior motive to try to influence us. The same can't be said about traditional advertising.

We know advertisers are trying to sell us something, and we know "let the buyer beware." When we are making buying decisions, people we know who have made similar buying decisions before us are a much safer, more reliable, and more credible source of information. We are more likely to act on their recommendations than on paid marketing.

The second reason word of mouth is so powerful comes from the targeting effect. Your customers associate with lots of people who are like them - your target customer demographic or psychographic. People your customers hang out with and talk to are quite likely to want, need, and buy similar products and services. When your current customers tell their friends positive stories about doing business with you, their audience is more targeted to your offer than a mass market audience that you reach with traditional promotions.

This according to Jonah Berger, a marketing professor at Wharton, who recently spoke to 100 multi-unit operators at SMG's Power User Exchange about the findings in his new book, Contagious, which is about why ideas, products, and brands catch on.

There is a lot of excitement today about the potential for word of mouth to go viral. But wait! The truth, says Berger, is that only about 7 percent of word of mouth occurs on social media. And even then, specific online channels come and go. Several years ago, MySpace was the next big thing; now it's not. In 2010 there was huge buzz about Foursquare, in 2012 Instagram, and today Pinterest. Facebook has been steadily growing, but that's no guarantee it will be here forever.

What has remained constant for 100 years is that consumers' direct experience accounts for most word-of-mouth advertising - regardless of whether it happens online, on the phone, in print, or in face-to-face conversations.

Rather than over-focusing on social media or any other single channel of communication, the most important issue is to understand why people talk positively about your business. Because when customers love you, they often express it. "When people care, they share" is how Berger puts it in Contagious.

With all the popularity around Net Promoter Score (NPS) it's important to note that being "willing to recommend" and actually talking positively about the brand are two different things.

How do you make your customers care and share? Multi-unit franchisees accomplish this by focusing on two things: 1) operational excellence, so you always give people what you promised, and 2) delighting customers, which includes being different in any way that tickles customers and is "remark-able."

For example, In-N-Out Burger is a concept with a great reputation for freshness and quality, an uncomplicated menu, and a fanatically loyal customer base. Since the brand almost never offers any new products, what's to talk about? Have you heard of In-N-Out's secret menu? When I googled it, I got 77 million hits; in other words, 77 million examples of other people talking and writing about In-N-Out!

Find a way to give your customers something to talk about. Something to share. Literally.

Customer service expert John DiJulius, also the founder of John Robert's Spa, gives two gift certificates to each of his best customers around the year-end holidays: one to use and one to give away. The first is inscribed with the customer's name as the recipient; the second is inscribed as "From" the customer's name.

That's the genius of marketing to your current customers. You are helping them be better ambassadors for you. It's also the most disruptive marketing factor. Word of mouth can influence a consumer to try you in a way that more advertising spending simply cannot.

It's also not a one-hit wonder. If each current customer brought you just one new customer, your business would grow indefinitely. If each customer brought you just two more customers, your business would grow exponentially.

SMG Vice President Jack Mackey helps multi-unit operators improve customer loyalty and drive growth. Contact him at 816-448-4556 or jmackey@smg.com.

Published: January 14th, 2014

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