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Do you Want to Be my “friend”? MONETARY VALUE OF WORD-OF-MOUTH MARKETING IN ONLINE COMMUNITIES

Author

Listed:
  • Trusov Michael

    (Robert H. Smith School of Business, University of Maryland, College Park, MD 20742 Tel: (301) 405-5878 Fax: (301) 405-0146)

  • Bucklin Randolph E.

    (UCLA Anderson School, 110 Westwood Plaza, Los Angeles, CA 90095)

  • Pauwels Koen

    (Ozyegin University (Istanbul, Turkey) and at the Tuck School of Business at Dartmouth (Hanover, NH))

Abstract

How large and lasting are the effects of word-of-mouth (WOM) referrals versus paid marketing? What is the $ / € worth of a WOM-referral to an Internet social networking site? This study finds that word-of-mouth referrals have substantially longer carryover effects than traditional marketing actions. The long-run elasticity of WOM on site signups is 0.53; about 20 times higher than that of marketing events, and 30 times that of media appearances. Based on revenue from advertising impressions served to a new member of the site, the monetary value of a WOM referral is about $0.75 per year. By sending out 10 referrals, each network member thus brings in $7.50 to the firm; which represents the maximum reward the firm could consider to incentivize word-of-mouth referrals. Managers can use this approach and findings to benchmark metrics for both WOM and traditional marketing, to test changes in online WOM referral content, and to decide on the appropriate size of financial incentives to stimulate WOM.

Suggested Citation

  • Trusov Michael & Bucklin Randolph E. & Pauwels Koen, 2010. "Do you Want to Be my “friend”? MONETARY VALUE OF WORD-OF-MOUTH MARKETING IN ONLINE COMMUNITIES," GfK Marketing Intelligence Review, Sciendo, vol. 2(1), pages 26-33, May.
    • Handle: RePEc:vrs:gfkmir:v:2:y:2010:i:1:p:26-33:n:4
    DOI: 10.2478/gfkmir-2014-0068
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    Cited by:

    1. Rooderkerk, Robert P. & Pauwels, Koen H., 2016. "No Comment?! The Drivers of Reactions to Online Posts in Professional Groups," Journal of Interactive Marketing, Elsevier, vol. 35(C), pages 1-15.

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