Word of Mouth

10606 Words Oct 20th, 2010 43 Pages
Michael Trusov, Randolph E. Bucklin, & Koen Pauwels

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 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
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One of the fastest-growing arenas of the World Wide Web is the space of so-called social networking sites. A social networking site is typically initiated by a small group of founders who send out invitations to join the site to the members of their own personal networks. In turn, new members send invitations to their networks, and so on. Thus, invitations (i.e., WOM referrals) have been the foremost driving force for sites to acquire new members. As social networking sites mature, they may begin to increase their use of traditional marketing tools. Therefore, management may begin to question the relative effectiveness of WOM at this stage. The objective of this research is to develop and estimate a model that captures the dynamic relationships among new member acquisition, WOM referrals, and traditional marketing activities. In doing so, we offer several contributions. First, we are among the first to link observed WOM directly to new customer acquisition. Second, we show how to 90
Journal of Marketing Vol. 73 (September 2009), 90–102

© 2009, American Marketing Association ISSN: 0022-2429 (print), 1547-7185 (electronic)

incorporate both the direct effects and the indirect effects of WOM and traditional marketing actions (e.g., a marketing action increases WOM activity, which in turn increases new member acquisition). We empirically demonstrate, for our data set, the endogeneity among new member sign-ups and
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