Effects of Word-of-Mouth versus Traditional Marketing: Findings from an Internet Social Networking Site

The authors study the effect of word-of-mouth (WOM) marketing on member growth at an Internet social networking site and compare it with traditional marketing vehicles. Because social network sites record the electronic invitations from existing members, outbound WOM can be precisely tracked. Along...

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Bibliographic Details
Published in:	Journal of marketing 2009-09, Vol.73 (5), p.90-102
Main Authors:	Trusov, Michael, Bucklin, Randolph E., Pauwels, Koen
Format:	Article
Language:	eng
Subjects:	Business structures Causality Comparative analysis Customers Electronic commerce Impact analysis Internet Marketing Modeling Observational research Online social networking Regression analysis Social networking Social networks Studies Vector autoregression Word of mouth advertising
Online Access:	Get full text
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Summary:	The authors study the effect of word-of-mouth (WOM) marketing on member growth at an Internet social networking site and compare it with traditional marketing vehicles. Because social network sites record the electronic invitations from existing members, outbound WOM can be precisely tracked. Along with traditional marketing, WOM can then be linked to the number of new members subsequently joining the site (sign-ups). Because of the endogeneity among WOM, new sign-ups, and traditional marketing activity, the authors employ a vector autoregressive (VAR) modeling approach. Estimates from the VAR model show that WOM referrals have substantially longer carryover effects than traditional marketing actions and produce substantially higher response elasticities. Based on revenue from advertising impressions served to a new member, the monetary value of a WOM referral can be calculated; this yields an upper-bound estimate for the financial incentives the firm might offer to stimulate WOM.
ISSN:	0022-2429 1547-7185