A Holistic Approach to the Measurement of WOM

WORLDWIDE MULTI MEDIA MEASUREMENT 2009

pART 5 / THE pOWER OF SOCIAL MEDIA

A HOLISTIC AppROACH TO THE
MEASUREMENT OF WOM
Its Impact on consumer’s decIsIons
Ed Keller
Barak Libai

INTRODUCTION some marketers are developing integrated approaches
to drive word of mouth advocacy, deploying “new”
numerous research studies conducted over the past few
and “old” media in combination. For example, some of
years show that word of mouth is the most important
the most successful super Bowl ads in recent years
consumer touch point when it comes to decisions about
have relied on social media and pr to drive consumer
products, services, and brands. media agency Zenith
awareness and engagement in advance of the super
optimedia, for example, released research results in
Bowl ad, thereby raising awareness and anticipation,
2008 that concluded, “recommendations from family
while the ad itself spurs further conversation during
and friends trump all other consumer touch points
and following the game. often there is a consumer
when it comes to influencing purchases,” according
promotion tie-in that further extends the opportunity
to a report on the research in the april 9, 2008, issue
for consumer engagement.
of Advertising Age.
Beyond recognition of the power of word of mouth and
With the recognition of the power of word of mouth, a
the influence it has on consumers, brands are motivated
growing number of brand marketers – and the agencies
to find ways to tap the power of consumer word of
that serve them – are investing in marketing approaches
mouth in response to the current economic realities they
designed to stimulate word of mouth advocacy. as a
face. often, out of economic necessity, the marketing
result, word of mouth marketing has emerged as one
community is moving away from strategies that
of the fastest growing media sectors. according to one
emphasize mass reach to strategies that involve targeting
estimate by media forecasters pQ media (pQ media,
fewer people with a message that is more relevant and
2008), u.s. spending on consumer-generated media is
compelling and thus more likely to be acted upon. It is
growing faster than any other type of alternative media
a change that emphasizes efficiency and effectiveness
segment (out of 18 measured).
over scale.
a wide variety of strategies to encourage word of mouth
today’s tougher economic climate also brings with it a
are being employed. many marketers are increasingly
demand for roI in marketing, and as a new approach,
focused on the opportunities afforded by digital media
word of mouth requires such proof. While many people
to facilitate the people’s growing desire to express
intuitively accept the philosophy of Wom, the need
themselves (e.g., social media platforms, online ratings
to justify investments in promoting word of mouth
and review sites, etc). others are employing offline word
programs is a key challenge faced by the word of mouth
of mouth approaches (e.g., the deployment of word of
marketing industry. a critical issue in this regard is the
mouth evangelists for brands, house parties, experiential
lack of a structured approach to measure the economic
marketing, and the like).

Copyright © ESOMAR 2009 1



value of word of mouth. While research can document MEASURING WORD OF MOUTH: QUANTITY,
the rising importance of word of mouth to consumers, QUALITY, AND INFLUENCES
and point to strategies to help companies generate
the source of primary data for this article is an ongoing
more Wom, this is not always enough. In order to justify
series of studies from the Keller Fay Group known as
marketing investments, managers need to understand
talktrack®. every week since June 2006, talktrack®
how word of mouth actually affects the bottom line.
interviews a fresh, nationally representative sample of
this paper reports on the findings of a unique approach 700 americans ages 13 to 69 about the “conversations”
to word of mouth measurement, developed by the Keller they participated in the day before the interview. this
Fay Group, and a unique methodology to quantify the translates into 36,000 interviews per year, with data
impact of word of mouth on a firm’s profitability based on collected about 350,000 brand conversations annually.
modeling work by professor Libai. (note: throughout this
the surveys are administered online. the participants
paper, we cite statistics and insights that come from the
are presented initially with a two-page diary they use
authors. unless otherwise indicated, all statistics related
to keep track of conversations in 15 product categories
to the quantity, quality, and drivers of consumer word
for a single day. a primary purpose of the diary –
of mouth come from talktrack®, the Keller Fay Group’s
beyond reminding respondents of the areas that we
ongoing system for measuring both online and offline
are interested in studying – is to help respondents to
Wom; all statistics relating to the economic value of Wom
remember the brands they talk about during the study
comes from work by Barak Libai, either independently or
day. the following day they complete a 20-minute
as co-author with professor eitan muller and professor
questionnaire in which they list the brands that came
renana peres.)
up in conversation and then answer detailed questions
Keller Fay’s word of mouth research takes a holistic about their conversation regarding each brand.
approach, measuring all word of mouth – both offline
talktrack® collects continuous data related to the quantity,
as well as online word of mouth; all people involved
quality, and drivers of word of mouth. We measure the
in word of mouth – both “speakers” (what people say
volume of word of mouth about products, services, and
when they discuss products, services, and brands)
brands, and as such are able to estimate (at any moment
as well as “listeners”, and the impact Wom has on
in time, or over time) how many conversations per day
them; and is the only ongoing study of word of mouth
about products, services, and brands consumers engage
that is representative of the total u.s. population.
in, which in turn allows us to monitor the absolute and
In order to measure the economic impact of word of relative volume of word of mouth about thousands of
mouth, professor Libai and his colleagues have used brands across 15 different product/service category areas
computer simulations – including inputs from Keller – including food/dining, media/entertainment, beverages,
Fay’s research – to determine the monetary value of travel services, shopping and retail, automotive, technol-
an individual due to his or her word of mouth effect ogy, telecommunications, finance, health and health care,
on others, or what might be labeled the social value personal care/beauty, the home, children’s products,
of this customer. In addition to measuring the social household products, sports/leisure/hobbies.
value of customers, this paper also focuses for the
In addition, talktrack® collects data related to the
first time on the word of mouth impact, from a profit
medium (mode of conversation, venue, and “sender”
perspective, of influencers compared to that of other
demographics); to the message (positive/negative
customers and finds that influencer marketing can
polarity, perceived credibility); and to the audience
increase long-range profitability by as much as 44%.
(demographics of “receivers” and relationship to “sender”).
It also identifies the drivers of brand mentions, including




customer experience and marketing communications, 1. Brands are important as social currency: Billions
and the outcomes of those mentions, such as intention to of brand impressions created each day via WOM
purchase, to get more information (“inquiries”), and to pass the most fundamental finding from our research
along to other consumers what was learned (“relays”). concerns the sheer volume of word of mouth among
consumers. there are 3.3 billion brand impressions
our method is distinguished from other approaches used
created each and every day in america via word of
to study word of mouth (many of which monitor online
mouth. Brands, it is fair to say, are a major currency
conversation via blogs, chat rooms, message boards, and
of conversation.
the like) in that talktrack® measures all word of mouth
(offline as well as online), all participants (both “talkers” What is significant about this figure is that it is one
as well as “listeners”), and all consumers (because the indication to marketers of the “size of the prize” if they can
study is designed to be representative of the total u.s. succeed in generating more and better word of mouth for
population ages 13 - 69, regardless of how active they their brands. Just a single share point of additional word
are in word of mouth). of mouth on a base of 3.3 billion conversations per day
– or even a half share point – would yield more than 10
While the database that has been compiled over a nearly
million additional conversations about that brand each day.
three-year period is extensive and allows for many types
of analysis and drill downs, here are five of the most the leading categories for word of mouth are food/
important – and in some cases, surprising – insights dining and media/entertainment, with a majority of all
into word of mouth that have emerged as a result of americans talking about these categories on a typical
this continuous study. day. Beverages, sports, and telecomm round out
the top five most frequently talked about product or
service categories. (see figure 1).
Figure 1
FIGURE 1
Consumers Talk About Many Categories
CONSUMERS TALk ABOUT MANY CATEGORIES
(Percentage of respondents have 1+ conversation in category on given day)
(pERCENTAGE OF RESpONDENTS HAvE 1+ CONvERSATION IN CATEGORY ON GIvEN DAY)

Food & Dining 55%
Media & Entertainment 51%
Beverages 43%
Sports, Recreation & Hobbies 40%
Telecommunications 39%
Technology 37%
Shopping, Retail & Apparel 37%
Automotive 34%
Health & Healthcare 33%
Financial 30%
Personal Care & Beauty 25%
The Home 24%
Children's Products 22%
Household Products 20%
Travel Services 19%

Base: Respondents, n=37,351
Base: Respondents, n=37,351
Source: TalkTrack®, January – December 2008 January – December 2008
Source: TalkTrack®,




Less frequently discussed categories – e.g., household programs when we look at results at the individual brand
products and children’s products – are not unimportant level. the economic challenges that began in the fall of
word of mouth categories. the reason these categories 2008 now make clear that the dynamics of conversation
fall lower on the list is because conversation about are also affected at the more macro level, responding to
brands in the category tend to be focused among economic circumstances. For example, word of mouth
narrower market segments such as adult women and about financial services brands rose noticeably once the
parents. When one looks at results for women and economy took center stage in september 2008. at the
parents, the percent of people having daily conversation same time, we have seen increasing Wom about media/
rises dramatically. Further, even among the total entertainment and sports, as well – precursors of trends
population, one in five or more consumers have daily toward higher box office sales for movies during the
conversations about every one of these 15 categories. downturn. at the opposite end of the spectrum, we have
seen declining Wom about a range of categories that
We have known since the beginning of talktrack®
require higher levels of expenditures, such as autos and
that word of mouth is sensitive to news or marketing
travel. (see table 1).

TABLE 1
FINANCIAL CRISIS NOT JUST IMpACTING FINANCIAL CATEGORY
MORE WOM ABOUT FINANCIAL SERvICES, SHOppING/RETAIL, AND MEDIA/ENTERTAINMENT; LESS ABOUT AUTO,
BEvERAGES, AND TRAvEL
(CATEGORY MENTIONS AS A pERCENTAGE OF ALL WOM MENTIONS AMONG ADULTS)

(Ranked by point Change Dec 2008 vs. Aug 12 Months Sept – Dec 2008 % point Change
2008) Ending Aug 2008
Financial 5.6% 6.5% +0.9
Shopping, Retail & Apparel 9.7% 10.2% +0.5
Media & Entertainment 11.1% 11.5% +0.4
Children’s products 2.4% 2.7% +0.3
Sports, Recreation & Hobbies 6.9% 7.1% +0.2
Technology 8.2% 8.3% +0.1
personal Care & Beauty 3.7% 3.8% +0.1
Health & Healthcare 4.5% 4.5% 0
Food & Dining 12.0% 11.9% -0.1
Household products 2.5% 2.4% -0.1
The Home 1.4% 1.3% -0.1
Telecommunications 7.0% 6.8% -0.2
Travel Services 4.5% 4.2% -0.3
Beverages 10.6% 10.2% -0.4
Automotive 7.0% 6.4% -0.6
Base: All Conversational Brand Mentions (12 Months Ending Aug 2008, n=251.773; Sept-Dec 2008, n=81,274)
Note: Percentage point change figures are derived from using more than just one decimal place. Percentages may round to just
less than 100% because “other” is not shown.
Source: TalkTrack®, September 2007 – December 2008




Most word of mouth takes place offline than one in ten (8%) in a negative one. the remainder
How and where do word of mouth conversations occur? is pretty evenly split between those who say the
While social media and other types of digital media are conversational mentions of brands was a mixture of both
often associated with the rising importance of word of positive and negative comments, and those who say the
mouth, our research indicates that fully 76% of word of conversation had neither a positive nor negative tone.
mouth conversations occur “face to face,” while another
the mixture of positive vs. negative word of mouth
16% happen by phone. In other words, a total of 90%+
varies by category, and by brand. certainly some have
take place offline. meanwhile, 7% of word of mouth takes
a stronger position, and some are weaker. For any
place online, of which 3% takes place via email and the
individual brand, there is a need to evaluate its individual
same number via instant or text message (3%), while
position relative to its category and how this is changing
1% is via blogs/chat rooms.
over time and to plan accordingly.
these findings are significant, because for many
However, the overwhelmingly positive nature of word
marketers, the monitoring of internet blogs and chat
of mouth is extremely important for marketers, for
rooms has been used as a surrogate for measuring
several reasons. First, it means that we should think
offline word of mouth. Yet our research finds that these
of consumers as primarily supportive of brands and
conversations are a distinct minority of consumer-to-
companies, in the sense that they want to help connect
consumer interactions about brands. and, because
good brands with good friends. While it is true that
talktrack® provides a basis for measuring all word of
stopping a friend from making a bad choice is a helpful
mouth, online and offline, and for making comparisons
act, the most helpful recommendation also offers a
among modes of communications, we now know that not
replacement choice, and perhaps several. second, these
only is there more word of mouth that takes place offline,
findings suggest that the oft-cited “risk” of participating in
there are distinctly different dynamics for offline and
word of mouth is likely overblown. the greater risk for
online word of mouth. offline conversations are more
marketers likely resides in not engaging in a conversation
positive about brands, more credible (to those on the
that is happening with or without the marketer’s
receiving end of Wom advice), and more likely to lead to
participation.
purchase intention. While the trends in online conversation
about brands are sometimes indicative of the trend in WOM inputs: Marketing communications drive
offline conversation, most of the time they are not. one WOM
reason this might be the case is that the demographic amid the recent growth in popularity of word of mouth
profile of people talking about brands online is dramati- marketing, the field is often described as an alternative to
cally younger than for offline conversations, with half of all “traditional” media and marketing channels. While word
online conversations about brands taking place among of mouth does represent a philosophical breakaway from
teens. (see more on the comparison between offline a one-way, top-down communication model, it does not
and online word of mouth in Keller Fay, 2008.) necessarily mean the abandonment of traditional media
and marketing channels. Indeed, about half (48%) of all
Most word of mouth about brands is positive
brand-related conversations include a reference to some
Whereas many people are surprised by the finding that
kind of media or marketing that was seen or heard by at
most word of mouth takes place offline, our findings
least one conversational partner.
about the “polarity” of word of mouth are also surprising
to many. overwhelmingly, consumers have positive these media and marketing references run a wide gamut:
things to say about brands, by a margin of more than advertising, editorial and programming, company websites,
six to one. across all brands in all categories, two-thirds point of purchase, coupons and other promotions, etc.
(65%) were mentioned in a mostly positive light, and less By medium, television drives the largest number of




conversations (15%), followed closely by the internet (11%). “input” tools available to marketers interested in driving
By media/marketing type, advertising emerges as the word of mouth on behalf of their brands.
most referenced in Wom conversation (20%). We estimate
Influencers: At the center of the word of mouth
that there are 716 million daily conversations about brands
conversation
in the u.s. that are “advertising-influenced,” and this is
In the six years since The Influentials (Keller and
probably a conservative estimate of advertising’s role
Berry, 2003) was published, interest in word of mouth
in word of mouth because it only counts conversations
marketing has grown rapidly and with it has come
where advertising is specifically mentioned by one or
increased demand for more and better insight on the role
more participants. as a result it does not include occasions
of influencers in stimulating word of mouth conversations
when an advertisement indirectly or unconsciously
and brand advocacy. With the passage of time has come
motivated or provided content to a conversation about a
a counter movement as well, in which some critics have
brand but where nobody directly references advertising
questioned the validity of “the influencer model.” (see
as a source of information in the conversation.
for example, Watts 2007.)
this leads to the question, when advertising influences
new research on the impact of influencers on firm
word of mouth, do we see different levels of efficacy?
profitability will be discussed later in this paper, but in
the answer is yes, in one important respect. Wom that
this section we want to share data on the volume of
is “ad-influenced” is about 20% more likely to bring with
word of mouth among influencers vs. others to help
it enthusiastic brand recommendations. Fully 46% of all
illustrate the disproportionate role they play in word
ad-influenced Wom involves a strong recommendation
of mouth.
to “buy or try” the brand versus 39% of other Wom.
meanwhile, Wom that doesn’t involve a reference to We find clear and consistent evidence that influencers
advertising is far more apt to have no recommendation (a group we at Keller Fay label conversation catalysts™)
at all (31%) compared to ad-influenced Wom (18%). have a far greater-than-average involvement in word of
mouth. compared to the average american, they have
so, while many consider Wom to be part of “new media,”
80% more conversations each week about products and
we now see that “traditional” media and marketing
services, and are 130% more likely to engage in brand-
channels can also be counted among the important
specific word of mouth. (see figure 2).

FIGURE 2 Figure 2
INFLUENCERS: ENGAGED IN FAR MOREInfluencers: Engaged in Far More Conversation
CONvERSATION
(AvERAGE # WEEkLY CONvERSATIONS AND BRAND MENTIONS*) brand mentions*)
(Average # weekly conversations and

Total Public Conversation Catalysts™
145
129

80

56

Conversations Brands

*Based on research in the United States on research in US
*Based




according to our projections, conversation catalysts™ of opinion leaders, also referred to as influentials,
are responsible for one-third of all the brand impressions influencers, connecters, catalysts, and hubs and by a
every day in the united states via Wom, a level more than plethora of cross-discipline academic research since the
two and a half times their demographic representation. 1950s that has examined the role of opinion leaders in
this translates into about one billion brand impressions the spread of new ideas and the growth of innovations.
that are being created each day in the united states
However, the validity of this practice is still in question.
as a result of word of mouth conversations involving
a well-known example is a recent study by Watts and
influencers. their opinions are sought out by their friends
dodds (2007) based on computer simulations. In this
and family, and they are far more prolific than the average
study, they argue that influencers do not necessarily
american in spreading the word about products, in
start contagion processes that differ greatly from those
category after category, for brand after brand. among
begun by ordinary social system members. more
consumers who are influencers at the category level
broadly, they suggest that the impact of opinion leaders
(e.g., Financial catalysts, or auto catalysts, etc.) word of
has been much exaggerated, and that influencers are
mouth levels about brands can be as much as five times
not required for social epidemics. Firms are further
as high as it is for the general population. a detailed
advised that marketing strategies should not focus on
analysis of the word of mouth of conversation catalysts™
finding influencers, but rather should be directed toward
is found in Keller, Fay, and Berry (2007).
helping large numbers of ordinary people to reach and
THE SOCIAL vALUE OF WORD OF MOUTH, influence others like them (Watts 2007). these claims
AND OF INFLUENCERS: THE IMpACT ON FIRM have attracted wide media attention, as well as debates
pROFITABILITY among marketing professionals in this industry, with the
question still open.
Introduction
In this section we present a way to measure the word of a critical issue in this regard is the lack of a structured
mouth monetary value of opinion leaders. It demonstrates approach to measure the value of opinion leaders to
how the empirical data gathered in comprehensive the firm. the broad cross-discipline academic literature
systems such as the Keller Fay Group’s talktrack®, on opinion leadership has historically focused on the
can be integrated into simulations to enhance our characteristics of opinion leaders and their communication
understanding of the non-trivial way in which customer behavior, i.e., identification of opinion leaders, how many
word of mouth turn into monetary value. similar to the others are affected by them, and why. In order to justify
holistic approach in getting empirical word of mouth data, marketing investments, however, managers will need to
our approach to social value is holistic, and takes into further understand how opinion leaders actually affect the
account multiple ways in which social interactions create bottom line. We label the monetary value of an individual
profitability. due to his or her word of mouth effect on others the
social value of this customer. We take two steps. First,
the need to justify investments in promoting word
we suggest a general approach for the analysis of the
of mouth communications of customers, and opinion
social value of customers. then we use this approach to
leaders in particular, is a key challenge faced by the
examine the value of opinion leaders in the context of a
word of mouth marketing industry. a large number of
new product’s growth. similar to Watts and dodds (2007),
market research firms and agencies help their clients
we use computer simulations to examine this question.
find ways to build brand and online communities, and to
However, from a monetary perspective, our conclusions
identify, recruit, and affect opinion leaders in the hope
differ. the main insights we suggest are:
that they will further influence their social systems. this
development is supported by a number of well known • the social value of a customer can be assessed as
books that have drawn attention to the importance the effect that the absence of this customer will have on




the firm’s long-range profits, beyond that customer’s typically, managers will not be interested in the profitability
direct lifetime value. of a single customer but a group of them, or all of them.
• customer social value stems from two main sources: customer equity is the sum of the firm’s lifetime values
additional customers that would not have purchased the from a group of customers. of special interest is the total
product, and the acceleration of the purchase process. customer equity – the customer equity of all present and
acceleration is an under-explored phenomenon, but future customers. In a sense, total customer equity is the
can drive much value. ultimate measure of marketing, i.e., all marketing efforts
• Individual-level simulations are an essential tool for are aimed at increasing total customer equity.
understanding the role of word of mouth (Wom) in
customer profitability measurement has historically
firms’ profitability.
focused on the profit to the firm from customer
• Focusing a Wom customer recruiting program on
transactions only. to differentiate it from other profitability
opinion leaders can increase the net present value (npV)
measures discussed next, we label the classical customer
of the firm’s revenue considerably, due to acceleration
equity measure direct customer equity. In contrast to
of the adoption process. In our simulations, seeding the
direct equity, we label as the social customer equity of
market with opinion leaders has increased long-range
a group of customers the impact on profitability of that
profitability between 6% and 14% over the alternative of
group because of their word of mouth effect.
approaching random customers. When compared to an
alternative of a no seeding program, the opinion leader to examine the social value of customers, we focus here
program provided long-range surplus value of 11%- on a case wherein a firm sells a new product (much of
44%. In more recent analysis, we find that a competitive the customer-related Wom that we see in the market
environment further enhances the importance of opinion is associated with the growth of some form of a new
leaders. product), has some current customers (which we label
adopters), and aims to acquire more. We use the term
Customer Social profitability
new product in a broad sense: It can be a durable good,
Before getting to the value of opinion leaders, we need to
a service, or even a behavior that the firm wants to
consider how to measure the social value of customers
drive (e.g., online banking). It can also be a new version
in general. Here we tie the measurement of social value
of an existing product, yet still new for customers.
to what turns out to be the central metrics of modern
It is the uncertainty and possible risk associated with
marketing: customer Lifetime Value (cLV) and customer
new products that makes Wom a major driver of their
equity.
growth.
cLV represents the expected profit or loss of a firm
consider a current customer named mr. smith. mr. smith
from a customer, measured by the present value of
has the potential to provide the firm with “social value”
the expected customer’s cash stream over a future
via one of three major avenues:
relationship time period. an important input for cLV is
the discount factor, which helps translate future money Incremental customers. mr. smith can help the firm to
to today’s value. the idea that a future cash stream acquire, via Wom, customers that otherwise would
needs to be discounted is a basic element of financial not have adopted. since each customer acquired has a
management, and as we will show, has an important direct lifetime value, one can argue that the social value
role in calculating the social value of opinion leaders. the of smith is the sum of lifetime value of these customers.
discount rate is not only a function of interest rates in the this approach is probably the one most widely used by
economy and the return on alternative investments, but marketing professionals, though often it is not the lifetime
also of the risk associated with the specific industry. value of the extra customers being considered, but
rather only short-range (e.g., next year) profits.




there are two challenges to the incremental customers by providing Wom to others, a customer accelerates
approach. the first is that, in practice, it typically counts the process of adoption of the new product. this takes
only the customers that mr. smith has actually affected into account the fact that that even if we assume that
(the “first degree of separation”). Yet, these customers all customers eventually adopt, the absence of smith’s
may in their turn add other incremental customers, and Wom will slow down the process as it will take some
the process can continue further on. therefore, the value customers time to be affected by alternative sources.
of mr. smith to the firm is actually higher when taking
Given that customers may eventually adopt and their
into account further degrees of separation. However,
lifetime value taken into account, one might wonder if
measurement of the full “ripple” effect is not trivial. the
the delay due to the absence of one individual could
reader may want to look at Hogan, Lemon, and Libai
have a notable impact. Hogan, Lemon, and Libai (2003)
(2004) for an approach to dealing with the calculation
have used the acceleration effect to calculate Wom
of a full ripple effect.
value at the aggregate level, and have shown that it
the other challenge to incremental customers relates to is indeed sizeable, especially in the early part of the
their use. It may be argued that in many cases, people product life cycle.
will eventually adopt the product without mr. smith.
to see the intuition, consider a case wherein mr. smith
customers are connected to multiple social networks,
“disappears” and stops affecting others via word of
and are affected by mass media, so eventually, if the
mouth. this will alter the whole ripple effect otherwise
product fits them well, they will get it anyhow. therefore,
created by mr. smith. not only might adoption by
it is not clear if it is justified to allocate the lifetime value
those close to smith in the social system be delayed,
of customers specifically to smith.
but further degrees of separation may be delayed
Marketing cost reduction. a certain version of the subsequently (of course, the extent depends on the exact
incremental customer approach is to argue that if not structure of the social system and the nature of the
acquired via Wom, customers would be acquired via product). For each adoption that is delayed, the lifetime
marketing actions such as advertising. (there are other value of this late adopter is affected via the discount rate.
marketing actions such as direct mail, store promotions, overall, the effect on customer equity can be substantial.
and salespeople. For our purpose here, all are grouped
Following the above, because of the possible long-range
under the label “advertising”). therefore, instead of the
effect of Wom, and due to the fact that in the absence
lifetime value of the incremental customers, the savings in
of a particular individual other means of communication
advertising are added (Kumar, peterson, and Leon 2007).
may compensate, we suggest that the way to analyze
one could ask of course if advertising actually substitutes the social value of customers is to “take them out”
for word of mouth. In the absence of mr. smith, some of the system, and observe the effect on profitability.
consumers may eventually adopt based on word of thus, the social value of a customer can be assessed
mouth from people other than mr. smith. For many, as the effect that the absence of this customer has on
advertising may not be relevant at all: the large body the firm’s customer equity, beyond its direct lifetime
of research on new product adoption suggests that a value. the measurement of customer equity before and
considerable part of the market may not adopt a new after mr. smith “disappears” will take into account the
product without some kind of social effects by others. acceleration effect, as well as any incremental acquisition
While advertising can clearly support the Wom process, or advertising savings, and in all degrees of separation.
it is not clear that it can replace it.
The role of opinion leaders
Acceleration. the third approach has had less exposure to examine the question of opinion leaders, we need
to date, yet can be of much effect. the basic idea is that to build a social system wherein an individual is an




opinion leader, and then “take him out” to see the impact. the other is to target influencers, who have a stronger
However, herein we are interested in a comparison to an effect on others via their large social networks, as well
ordinary person in the social system. so the differential as their persuasiveness. some methods to get to such
effect of opinion leaders is the customer equity opinion leaders include programs for identification of
difference between a case wherein they are part of the and communications with influencers; recruitment
social system, and the case wherein non-opinion leaders of influencers as agents in Wom programs; and the
would be part of the social system in their stead. establishment of “brand communities”. such efforts
may be costly; to justify them, one needs to understand
the two dimensions whereby opinion leaders have
to what extent the social value of an influencer is higher
been historically characterized are connectivity and
than that of a random customer.
persuasiveness (see for example Goldenberg et al,
2006). the first is related to how many others they have the simulation we present next is part of an ongoing
in their social system; the second considers to what research effort to explore the social value of customers.
extent they have a stronger impact on individual others, as part of this effort, simulations will be used to examine
for example through their expertise or their interest in optimal investment in Wom programs, the interaction of
the subject. We will use both dimensions to construct Wom and advertising, the impact of competition on the
an “opinion leader” in the following analysis. social value of customers, and related issues. Herein,
however, we examine one question only: Given that a
We will examine the case of a group of customers
single seller that decides to affect the adoption of a group
connected in a social network that together form a
of customers, what will be the differential effect if it does
“social system”. a firm introduces a new product, and
so via opinion leaders vs. random customers? We do
this social system gradually adopts it. From the firm’s
not look at the costs of these programs or any other
perspective, an individual’s adoption means a certain
marketing effort, so we will answer questions based
expected lifetime value. due to the discount rate, later
on optimal investments. our simulation will focus on
adopters are worth less today.
the acceleration effect, i.e., we assume that the market
potential users become adopters following one of two potential has been correctly identified, and thus eventually
influences. First, there is a certain probability that an all potential customers may adopt the new product.
individual will adopt based on advertising. second,
We consider a social system with 2,000 members.
via word of mouth, each adopter has a probability of
to assign members to social networks in a realistic
affecting non-adopters in his or her social system.
way, we were assisted by the Keller Fay Group’s
Beyond advertising, the firm may choose to create a talktrack®, discussed above. using talktrack® data on
seeding marketing program that will impact word of the distribution of social networks, we built a similar
mouth and accelerate adoption. the firm may choose a distribution of social networks for our analysis.
number of potential adopters and affect their adoption
the members of this social system, whom we label
behavior via word-of-mouth programs, i.e., by giving
influencers or opinion leaders, are a group of customers
them samples and/or exposing them to information
in the top 10% in terms of their social system sizes,
about the brand, or promotions. the expectation is that
which have been found to be about three times the
if these customers adopt, it will create Wom processes
surveyed average. We also assume that they have
that will bring further adoption. We label this group of
stronger brand-related impact. using the talktrack®
targeted customers ‘seeds’.
studies, Keller Fay found that catalysts, the group that
the firm faces two alternatives in this regard: one is to influences others most, discuss brands twice as much
acquire potential customers to the program randomly. on average compared to others. Following these findings,




and interviews with professionals in the Wom marketing leaders. columns 5 and 6 are the improvement of the
industry, we decided to assign a double persuasiveness two programs over the no-program option.
score to opinion leaders.
a number of insights can be gained from these
other parameters we used relate to the average effect results:
of advertising and Wom on individuals, i.e., what is the
a) Wom programs to encourage early adoption have
probability that an individual will be affected by Wom
a considerable effect on profitability. even if random
or by advertising in a single period (say a year), and
customers are chosen, the increase of customer equity
ultimately adopt the product? We relied on previous
over the no-program option is substantial. of course, one
academic research in this area that established a range
would have to examine the costs of such programs to
of value for parameters in such simulations. For details,
determine net profit.
see Goldenberg, Libai, and muller (2001).
b) However, getting to influencers in the Wom program
We used a yearly 10% discount rate that is consistent with yields higher customer equity than do random
previous studies of customer profitability. For simplicity, customers. the absolute difference between the two
we assumed that an adopting customer brings the firm options increases for larger programs (3%-7% of the
one unit of lifetime value (because we do not consider population) compared with small programs (0.5%-1% of
costs here, the exact sum is of less importance). the population). For the larger programs, the difference
between the two options in terms of customer equity is
Results
around 14%.
the main results are presented at table 2.
c) acceleration matters. note that we did not make any
Looking at table 2, the left-hand column reflects the assumptions that customers will not adopt without the
size of the seeding program as a percentage of the program. thus, we believe our results are conservative
total population. We consider programs that use from regarding the contribution of the Wom program: If there
0.5% to 7% of the population. column 2 presents the is incremental customer acquisition, we expect the
customer equity (long-range profitability) if there is no word of mouth effect to grow.
Wom program. column 3 is the customer equity if the d) We see a diminishing effect of additional members in
program recruits customers randomly (among them, the program. While the profits from the Wom programs
of course, possible opinion leaders). column 4 is the increase with the size of the program, the effective-
customer equity if the program includes only opinion ness of each dollar invested goes down. consider the

TABLE 2
LONG-RANGE pROFITABILITY UNDER vARIOUS SEEDING OpTIONS

1 2 3 4 5 6
proportion of Customer Equity Customer Equity Customer Equity Improvement Improvement
Seeding No program Random Seeding Influencer Random Seeding Influencer
Seeding Seeding
0.5% 880 923.9 979.3 5.0% 11.3%
1% 880 961.1 1033.4 9.2% 17.4%
3% 880 1040.4 1157.4 18.2% 31.5%
5% 880 1100.2 1225.6 25.0% 39.3%
7% 880 1146.7 1268.5 30.3% 44.2%




improvement in influencer seeding in table 2. With a 0.5% References
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Michal Master Barak (2006), “the role of expert versus social
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by more than one brand. Initial simulations we con- Keller, Ed and Jon Berry (2003), the Influentials: one american
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in a competitive environment. In fact, that relative role to Buy. new York: Free press.
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CONCLUSIONS Marketing, pp 173-181. Womma:

using simple simulations integrated with empirical Keller, Ed and Brad Fay (2008) “comparing online and offline
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the market with opinion leader programs can have of Mouth: Current Thinking on Research and Measurement of
substantial impact on the long-range profitability of firms. Word of Mouth Marketing, pp 91 – 103. Womma.
Hence, generalized claims that influencer programs are Kumar, V.; Andrew Petersen; and Robert P. Leone (2007), “How
a waste of money may not reflect well the market reality. Valuable Is Word of mouth?” Harvard Business Review, 85(10),
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Watts, Duncan J. and Peter Sheridan Dodds (2007),”Influencers,
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The Authors
Ed Keller is CEO, Keller Fay Group, United States.

Barak Libai is Associate Professor of Marketing, Recanati
Graduate School of Business, Faculty of Management, Tel Aviv
University, Israel.


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