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The economics of buzz - word of mouth drives business growth finds LSE study

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Word of mouth, both positive and negative, is a powerful component in driving UK business growth finds new research from academics at the London School of Economics and Political Science (LSE) and The Listening Company.

Word of mouth can also be used to predict sales growth; the higher the net-promoter score*, the industry standard measure of word of mouth, the higher the growth.

Dr Paul Marsden and Alain Samson of LSE and Neville Upton, The Listening Company, compared the results of a telephone survey on a random sample of 1,256 adult consumers in the UK against the 2003 and 2004 sales data from banks, mobile phone networks, supermarkets or car manufacturers.

The found that both word of mouth advocacy (as measured by net-promoter score) and negative word of mouth were statistically significant predictors of annual 2003-2004 sales growth:

  • Companies enjoying higher levels of word of mouth advocacy (higher net-promoter scores), such as HSBC, Asda, Honda and O2, grew faster than their competitors in the period 2003-04.
  • Companies suffering from low levels of word of mouth advocacy and high levels of negative word of mouth, such as Lloyds-TSB, Sainsbury's, Fiat and T-Mobile, grew slower than their competitors.
  • A 7 per cent increase in word of mouth advocacy unlocks 1 per cent additional company growth.
  • A 2 per cent reduction in negative word of mouth boosts sales growth by 1 per cent.
  • In monetary terms, for the average company in the analysis, a 1 per cent increase in word of mouth advocacy equated to £8.82m extra sales.
  • A 1 per cent reduction in negative word of mouth for the average company in the study resulted in £24.84m in additional sales.
  • Companies with above average positive word of mouth and below average negative word of mouth grow four times as fast as those with below average positive word of mouth and above average negative word of mouth.
  • A literature review of techniques for optimising word of mouth advocacy and thereby unlocking growth identified eight distinct techniques: Referral Programs, Tryvertising, Empowered Involvement, Brand Ambassador Programs, Causal Campaigns, Influencer Outreach, Advocacy Tracking and Innovation.

The report concludes by suggesting that the net-promoter score as a measure of word of mouth advocacy may be useful not only in predicting sales growth, but also in predicting share performance and employee productivity.

Dr Paul Marsden, LSE's Department of Social Psychology, said: 'These findings suggest that businesses seeking year-on-year growth may be overlooking their most powerful growth-generating asset; existing clients, customers or consumers. With a range of turn-key solutions for optimising word of mouth advocacy, businesses can transform satisfied buyers into vocal advocates who become part of a volunteer sales force.'

The researchers conclude that three simple questions could predict overall business performance:

  • Likelihood that customers would recommend a company or brand to friends or colleagues. Net-promoter score as a predictor of sales growth.
  • Likelihood that investors would recommend investing in a company to friends or colleagues. Net-promoter score as a predictor of share performance.
  • Likelihood that employees would recommend working for their company to friends or colleagues. Net-promoter score as a predictor of productivity.

Click here to download a copy of the report| (PDF)

Ends

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Notes:

Advocacy Drives Growth: customer advocacy drives UK business growth is by Dr Paul Marsden and Alain Samson of LSE's Department of Social Psychology and Neville Upton, chief executive of The Listening Company.

The Listening Company was founded by Neville Upton in 1998 as a specialist Customer Relationship Management provider, offering strategic and operational support. Contact: NevilleUpton@Listening.co.uk| 

* The net promoter score is the industry standard measure of word of mouth advocacy, established by Bain & Co in 2003. It is calculated by simply asking people the likelihood (0-10) they would recommend a company or brand that have used. The net promoter score is the percentage of respondents highly likely to recommend (answering 9-10 and labelled word of mouth 'promoters') minus those less or unlikely to recommend (scoring 0-6 and labelled word of mouth 'detractors'). Research in the US published in the Harvard Business Review in 2003 by Bain established that the net-promoter score is correlated to US business growth.

Press cuttings

PR Week
The seven deadly weapons in the influencer marketer's armoury (14 Oct)
Word of mouth is the most powerful marketing technique there is. Dr Paul Marsden, of the Institute of Social Psychology at LSE, has spent the past three years researching and defining the techniques that marketers use for this purpose. Marsden's seven influencer tools are designed to turn the ten per cent of people who will influence the buying behaviour of the other 90 per cent into word-of-mouth advocates.  

PR Week
Measuring the unmeasurable (23 Sep)
PR campaigns are increasingly all about creating 'buzz'. But how can this be monitored? Paul Marsden quoted on the benefits of good word of mouth. 
http://www.prweek.com/uk/search/article/517823/measuring-unmeasurable/
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18 October 2005

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