What’s the sales impact of customer Word-of-Mouth?


I have been reading Walter Carl’s blog on the power of WOM.  Historically, I guess, measurement of WOM has been an issue. I have also been looking at Jonathan Carson’s Buzzmetrics blog. 

I for one, personally, am not an advocate of "paid WOM" as I believe it is certainly not sustainable. Consumers who have used the products and have a strong opinion for or against a brand, are more likely to be the right audience who can "spread the message". They normally say things with passion and conviction.

I have an interesting and an old research done by Coca Cola Company on WOM  called Measuring Grapevine and WOM. Here are some quotes from the article:

".. WOM communications result from the good and bad experiences consumers have with products… WOM testimonial is an extremely important factor in the calculus of the consumer’s final purchasing decision…It can be an even more influential factor than mass media advertising…"

Coca Cola actually has a formula for measuring the Sales Impact of WOM. They broke down the customers as complainants and inquirers:

Sales Impact of Complaints:

Relative Sales Impact of WOM =  Ppwm/ 2 x ( Pnwm)

Ppwm =  Number of people who received Postive WOM from Coke( after they complained)

Pnwm- Number of people who received negative WOM ( after they complained)

For example, if there are 5 word-of-mouth recipients  and 2620 complainants( completely satified consumers with their complaints) and if there were 6 WOM recipients and 1113 complainants ( who were not completely satisfied but acceptable) and there are 10 WOM recipients and 633 complainants( who were dissatisfied even after they complained), applying the above formula:

19,778 WOM recipients/ 2 x 6330 WOM recipients  = 1.56

1.56 customers were gained by them, as a result of positive WOM communications for every customer lost because of negative WOM due to complaints received by the brand.

For Inquiries, the relative sales impact is:

Ppwm/ 2 x Pnwm = I inquiry handle WM

If we follow a similar process( leave the numbers for now) and apply the formula, 7.16 customers were gained as result of inquiry handling by the brand.

To me, the nice thing about this metric is  that once you create a buzz, it clearly gives you an indication as to  whether a brand is handling all the customers right. There is no use creating the buzz and not handling the inquiries right. Also, same is the case with complaints after you have acquired them as customers. If you have a bad customer care department and bad service policies, customer churn will be high and buzz creation will never lead to increase in market share.

Would love your comments on this post.

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