How to Retain Customers: Invest in Talkworthy Advertising + WOM

Wednesday, 13 April 2016 / Published in Blog, Offline WOM, Telecom, WOM and Advertising

Considerable attention has been paid lately to quantifying the role of word of mouth and social media in driving sales.  Is it a critical business driver, or a “nice to have”?

From our research, we know that advertising coupled with word-of-mouth is a powerful driver of sales. About one-third of the sales impact is attributable to WOM acting as an “amplifier” to paid media, such as television, with consumers spreading advertised messages.

A landmark study commissioned by the Word of Mouth Marketing Association (WOMMA) and conducted by the market mix modelers at Analytic Partners measured the impact of consumer word of mouth in six diverse categories, and found that online and offline consumer conversations and recommendations account for 13% of consumer sales, on average. That represents $6 trillion in annual consumer spending. In high consideration categories, the sales impact of WOM was seen to be as high as 25%.

Both offline WOM and online social media contribute to this sales impact, with offline driving two thirds on average and online driving one third. Further, the study found that one of the important ways that WOM drives sales is by amplifying paid advertising. In fact, 15% of the marketing effectiveness of paid advertising comes as a result of people talking about it or sharing it on social media.

If WOM is known to drive sales by amplifying advertising, then what might its impact be on other marketing outcomes?

AT&T has long used marketing mix modeling to evaluate the impact of marketing activities on sales value. We’ve worked with them to provide WOM metrics for their marketing mix model and even presented the results of our research at an Advertising Research Foundation conference a few years back.

This research showed WOM mentions were one of the more powerful metrics directly influencing sales. It was a statistically significant sales driver in the AT&T marketing mix models, explaining about 10% of sales volume.

The telecommunications company has since taken that research a step further and looked at the factors that influenced customer retention. AT&T’s Greg Pharo and Charlie Hinton presented the results of this research at last month’s ARF Re!Think 2016 Conference.

What they discovered surely will intrigue brand marketers everywhere: Mass media plays a significant role not just in attracting new customers, but also in retaining customers, with a retentive impact of between 15% and 35% of its sales impact.

Perhaps even more significantly, AT&T also learned that ad quality matters more for retention than it does for sales.  Further, the AT&T models show that WOM is once again a critical element in the way that ads help to retain customers.

This makes sense because as our research shows, quality advertising tends to drive more WOM for brands. Producing advertising that gets people talking will not only drive new customers, but also influence whether or not a consumer will stick with your products and services.  Thus, WOM can help drive business outcomes in two ways:  new customer acquisition and reducing churn.

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