http://www.atsweb.neu.edu/w.carl/PDFs/colleagues/LSE_AdvocacyDrivesGrowth.pdf

This paper summarizes the results of a study conducted on the effects of word of mouth advocacy on the growth of businesses. The study observed word of mouth communication in two areas: Postive Word of Mouth (PWOM) and Negative Word of Mouth (NWOM). The authors used a point scoring system developed by Net Promoter (TM) that measures WOM rates as a parameter with reference to growth. What they found was that companies with a relatively high NetPromoter Score and relatively low NWOM rates grew 4 times as fast as their competitors. These results were found across many different industries ranging from automobile manufacturing to retail banking. Apparently there is a direct corellation between success and how positive one’s image is.

Specifically the factors that the paper declares most important are:

1) The rate at which customers recommend a brand to friends

2) The rate at which investors recommend investing in a specific company to friends or colleagues

3) The rate at which the employees recommend working for a specific company

Interestingly, the paper claims that with these 3 rates, one can accurately predict a company’s performance. These findings magnificently justify that the small mechanisms at work (the simple recommendation from one friend to another) on a large scale have a tremendous impact. In the UK industry, a total 1% decrease of NWOM would result in a 24.84 million pound increase in revenue for the 1000+ companies surveyed. In addition the paper delves into various techniques that can be used in order to increase PWOM. These include: referral programs, Tryvesting (a recently popular technique that combines free trials but selectively for those consumers who are most likely to advocate the product the service), and also advocacy tracking.

One interesting question that comes to mind with this paper that is not fully answered is how much of a factor is the value of the actual product. If there is more of an information cascade system occuring then one possible technique would be for companies to pay artificial PWOM advocates (advocates that otherwise wouldn’t be advocates if they weren’t getting paid) to generate enough positive communication so that growth will increase. I’m pretty sure this is already a commonly used technique, but I wonder if there is a distinction between artificially produced PWOM and genuine PWOM (eg., is PWOM enough to boost a companies growth or does it have to be genuine PWOM?).