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What Is word-of-mouth Marketing, And Why Is It So Important?
7 min read
Intro
Take a minute to recall the service providers you frequent the most in your day-to-day — your preferred gym, internet provider, streaming services, and the brands you swear by.
Now, how many of them won you over through advertising? And how many did you patronise because your peers, family members, or even a mere acquaintance suggested them? There’s a good chance the latter constitutes a larger number — since, let's face it — they’ve all had personal experience with these brands, which means their opinion is odds-on to be more credible and less biased.
A survey from GlobalWebIndex indicates that word-of-mouth (WOM) is one of the top 5 ways customers discover new brands, ranking 4th behind Google, digital ads, and TV. And even when customers discover brands through ads and TV, as much as 74% still give WOM more probative value than other sources in their purchasing decisions.
So, what’s all the fuss about word-of-mouth marketing, and how could such an incredibly simple strategy impact your bottom line? Here’s the lowdown.
What is word-of-mouth marketing?
WOM marketing is a form of marketing that relies on personal recommendations from satisfied customers to promote a product or service.
Unlike traditional advertising where marketing messages are generated by the company itself, word-of-mouth is made by its customers, thus making it a potent marketing tool since it’s more trustworthy and credible than conventional advertising.
Why is word-of-mouth important in marketing?
Last year, businesses and their marketing departments spent over $146 Billion on advertising in Europe across digital and traditional media. That translates to thousands of ads competing for the attention of the same pool of customers. Couple this with the current climate of media scepticism, and you’ll see why paid ads are hardly as effective as they once were.
On the other hand, WOM marketing is built on the rock-solid foundation of pre-existing trust. No sales motives are involved, meaning there is little to no sales barrier.
Usually, the person spinning a good yarn about your business and the prospect have built a relationship beforehand. When they recommend a product or service they’ve used and are delighted in, the prospect is readily receptive. This ‘trust factor’ is precisely why word-of-mouth should be top-of-mind when drawing up your marketing strategy.
How does word-of-mouth help businesses?
What impact does word-of-mouth marketing have on consumer behaviour and your business? When you incorporate WOM as a component of your overall marketing strategy, it does three things:
Improves trust and brand reputation
Brand-consumer trust is notoriously hard to build. When you acquire new customers, you’ll have to jump through a few hoops before getting them to trust you enough to become loyal customers. word-of-mouth, however, is different.
As mentioned earlier, the biggest benefit of WOM marketing is trust. Your prospect is more receptive to the message because of their pre-existing trust for the ‘marketer’ (who doubles as your existing customer). Some of that trust spills over unto your brand as they reason, “If Emily trusts them, I will too”.
As such, unlike customers acquired from traditional sources, there’s no need to begin building trust from the base level.
This is where efficy CRM’s real-time analytics, suite of engagement tools, and powerful segmentation capabilities come in handy. These functionalities help you harness customer data to improve customer experience with systems (think referral systems) that reward loyal customers. That way, only positive stories are spun about your brand.
Significantly lowers marketing cost
Another great benefit of WOM is that it doesn’t cost a dime. Unlike you would have with traditional media, customers do not charge you to spread the word to their friends and family about products or services they find satisfying.
Costs that can be attributed to WOM marketing are the same costs you must have expanded towards your customer experience to boost customer loyalty. So, by infusing word-of-mouth into your marketing strategy, you can happily cut back on your marketing budget while still bagging medals in ‘The Conversion Olympics’.
Builds long-term value for your brand
In what is probably the biggest benefit, the long-term value of WOM in unison with customer loyalty programs can help you create a healthy base of loyal customers. A study by Wharton found that customers acquired through word-of-mouth are usually between 16 and 24% more loyal.
And as loyal customers are more likely to make larger purchases, your business remains profitable for the foreseeable future. This means more brand reach and more brand equity.
Much like bad news spreads fast, a raving review about your brand also makes for newsworthy content. The buzz created from word-of-mouth can help spin off another inbound pipeline of potential customers who’re — if we’re being honest — merely looking to get a scoop of what’s fueling the frenzy.
If you offer newsletters, efficy’s email tool allows you to leverage surveys seeking feedback. You can then segment for customers who you’ve already delighted with your experience (according to the survey) and trigger an automation to send a ‘please share’ mail to them immediately since they’re most likely to spread the word.
What companies have been successful through just word-of-mouth marketing?
Global brands have employed WOM marketing strategies, for which they’ve earned massive success. Let's review some of them below.
Pinterest is probably the world’s biggest beneficiary of word-of-mouth marketing. With over 433 million active monthly users, it’s the 14th biggest social media platform in the world.
It’s also one of the fastest-growing networks. Between 2019 and 2020, its user base expanded by 22.36%, only coming 4th after TikTok, Snapchat, and Reddit. But its most impressive feat yet is growing from 3,000 users in 2010 to well over 200 million in just eight years.
To achieve this, Pinterest employed a WOM marketing strategy. As with internet platforms, Pinterest’s earliest users were a small number, but they were notably enthusiastic. Pinterest took advantage of this by creating its now-famous ‘Pin it forward’ campaign.
The campaign urged its users to create pinboards and then ask their friends to join in the fun. Being an image-based site, getting people excited wasn’t too difficult. And in no time, Pinterest grew from a fledgling startup social media platform to a fully-established company with millions of monthly active users.
Tesla
Tesla is another great example of the modern miracle that is word-of-mouth marketing. The company famously spends $0 on marketing. Instead, Tesla rides the wave of public buzz and the influence of its founder, Elon Musk, to skyrocket its brand visibility.
And it’s paid off immensely. In just under two decades, the company has grown exponentially. In the last fiscal year, Tesla recorded a 71% growth in revenue relative to the previous year. The Tesla Model 3 crossed one million units in sales in June 2021, becoming the first electric vehicle to achieve that feat.
For Tesla’s customers, the cars are status symbols of some sort, so it's not unusual to find Tesla owners showing off their cars on the internet every so often. This helped drive online buzz that was converted into sales. But that's just one part of it.
To get things moving at the start, Tesla created a referral program, incentivising its customers to get the word out. Referrals earned customers the privilege to attend unveiling events for new Tesla vehicle models and even SpaceX launches.
And with enough referrals, customers could get a new Roadster for free. Considering that Tesla’s earliest customers were people interested in futuristic technology, these incentives were highly effective. The referral program also included secret, exclusive levels.
However, as the company’s customer base grew, these benefits became cost-intensive, so they had to be phased out. And a new and more cost-effective referral program was put in its place.
Today, using a referral code when purchasing a Tesla earns the referrer and the buyer 1,000 supercharger miles for free. Every referral also earns the referrer an entry into either of Tesla’s monthly and quarterly raffle draws for a Model Y and Roadster supercar.
Morning Brew
Another example of incentivisation for sharing as a tactic that drives WOM, Morning Brew created a referral program to reward readers when they refer new subscribers.
Their email referral program yielded 30% of their subscriber base, with a cost-per-acquisition of just $0.30, which is 10X less than the $3—$5 cost-per-acquisition they scrounge up for new subscribers gotten through Facebook Ads.
efficy CRM’s Integration capabilities also enable you to align your emails with every customer journey, whether a new subscriber, existing subscriber, or prospect. With the data available from your CRM sofware, you can send the right messages with the right offers to your pool of subscribers.
Wrap up
Done right, word-of-mouth marketing can have far-reaching implications for the growth of your business. While it costs far less than traditional marketing methods like paid ads and organic posting, its conversion rate is gainfully higher.
Also, customers brought in by WOM are likely to become fiercely loyal marketers and brand ambassadors when they’re delighted with their experience.
But it requires work. Before you can look to earn the returns of WOM marketing, you must first develop an army of loyal customers who would be your foot soldiers in the battle for new prospects.
Marketing automation empowers you with all the tools you need to nudge customers through the pipeline, from prospects to loyal customers and word-of-mouth advocates.
At efficy, we pride ourselves on being a market leader in providing top-rated marketing automation solutions to businesses across Europe and beyond, especially membership and subscription-based businesses. Why don’t you book a demo today?
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