Word of Mouth Small Businesses

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Word of Mouth Marketing

Word of Mouth Impact on Small Businesses

Terria Sinclair Service Marketing 545 Dr. Ziemnowicz December 8, 2010

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Word of Mouth Marketing

Abstract The purpose of this paper is to analyze WOMM and how it can be very influential on many firms, small businesses. This paper will attempt to show how word of mouth (WOM) can be very beneficial for small businesses such as local hair salons, motion picture industry, and cosmetic products. Various statistics will be presented in this paper to show the impact of WOM on firms. Statistics will be calculated using questionnaires, surveys, and interviews. Based on personal experiences, I will attempt to measure the impact of word of mouth marketing. WOM can have positive and negative impact.

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Word of Mouth Marketing

Word of mouth marketing (WOMM) is a growing phenomenon that has become a very influential source of marketing/advertising. Word of mouth marketing is defined as ³Giving people a reason to talk about your products and services, and making it easier for that conversation to take place´ by the Word of Mouth Marketing Association. According to White Paper (2007) ³«word of mouth marketing is what companies do to spark consumer interest in a way that causes them to share their experiences with others.´ Word of mouth only works if people are involved, so people are the main focus of WOM. As consumers we are willing to talk about our experiences whether good or bad. A conversation about a good experience and a simple suggestion to a friend is the core process of WOM. Word of mouth marketing is simply a recommendation by a customer. Recommendations are a major advantage that word of mouth marketing. People have a higher trust for suggestions or the opinions of friends/family members than the recommendation of a company. You aren't just getting comments from strangers, but from people whose opinions you respect. You are able to judge their opinions in the context of what you know about them. You also know that they don't have ulterior motives, and that they aren't trying to "sell you" anything. The concept of recommendations allows the company to reach better qualified prospects. Consumers will only recommend products for people that are in that certain type of market. For example, if I recently purchased some hair extensions and had a good experience, I am not going to recommend this product to individuals that don¶t wear extensions. The use of TV advertising and print media allows companies to reach a large audience but only a small percentage actually may show interest in the product. Word of mouth increases the firms¶ chances of reaching their ideal target market. Word of mouth pioneer George Silverman states, ³When we learn about a product or service from a credible peer, people tend to act on one in three of those impressions. The math
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Word of Mouth Marketing

tells us that peer influence is 5,000 times more effective than traditional marketing.´Another advantage of word of mouth marketing is how inexpensive it is. The reason why it¶s so inexpensive because it is carried out by customers. The main focus of word of mouth marketing is the people. The communication between individuals is no expense for the company and this is why word of mouth is inexpensive. Word-of-mouth marketing allows you to use the "grapevine" to more quickly find out what people think of your company, measure results of your marketing efforts and get new messages to the public. With word-of-mouth marketing, it's easier to find out what people are saying about your company, especially if they're saying it on social networking sites. Another advantage of word of mouth marketing is the increase of customer loyalty. When new customers occur because of WOM then it¶s highly likely that the customer will build a loyalty for the company or brand. WOMM can produce numerous new customers for a company and this allows the firm to focus more on keeping the customers. Word of mouth marketing can be a very effective marketing tool if used properly. There are some downfalls of word of mouth marketing if it is negative. All products cannot be successfully marketing with word of mouth. Products that are extremely niche specific will more than likely not work of a WOMM campaign. The reason being is because consumers are less likely to come in contact with someone that they could recommend the product. Also products that lacks a form of stimulation whether it be excitement or element of surprise it will be a struggle to get people to talk about your product. It¶s important for firms to offer high quality product or service. The product should function as advertised and should be of the same quality as promised because of it isn¶t than WOMM can back fire. People will be honest about their experience with the product and the word of mouth strategies will simply allow your customers to spread disapproval. If a consumer has a negative experience then they will not recommend the
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Word of Mouth Marketing

product and their experience may influence another¶s consumer decision on whether or not to purchase the product. Negative consumer feedback can impact a business due to word of mouth. According to Bayus, ³...it is perhaps even more important for a firm to be aware of negative word of mouth about its products.´ Poor word of mouth can result in costly damage control and the failure of a product, movie, or entire company. Consumers can be dissatisfied with a product because of price, the quality of service, and can all affect a business through word of mouth marketing. Another disadvantage of WOMM is the inability to track impact of WOMM. It's virtually impossible for companies to track every feature of word-of-mouth marketing. WOMM lacks the structure of email marketing. Email marketing can be tracked by open rates and clicks, thus allowing companies to see the impact of marketing tool. With the rapid growth of technology, companies can use networks such as Twitter and Facebook to see if their brand is mentioned. From my personal experience, I used Twitter to search Air Tran, an airline company. I had a very bad experience with this airline company and I used Twitter to find other people that had negative experiences and I also used twitter to express my opinion about the company. I also used the ³retweet´ function of Twitter to retweet as many negative Tweets about the airline I could find. This is a prime example of how WOMM can be negative. Recent technology advances has had a direct impact on the increase of word of mouth marketing. The use of TIVO, DVR, and online social networks has contributed to the decline TV viewers in recent years. With such decline the use of WOMM has grown substantially and the most used form of marketing. A recent study by Nielsen validates companies¶ word of mouth marketing efforts.

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Word of Mouth Marketing

To What Extent Do You Trust the Following Forms of Advertising Marketing Strategy Recommendations from Consumers Newspapers Consumers opinions posted online Brand websites Television Magazines Radio Brand Sponsorships Email Signed Up For Ads Before Movies Search Engine Ads Text Ads on Mobile Phones Percent 78% 63% 61% 60% 56% 56% 54% 49% 49% 38% 36% 18%

Source: Nielsen Online Global Consumer Study April 2007 This study shows that consumers are more likely to make a purchase decision based on a recommendation than based on any other form of advertisement. Consumers have more trust in the opinions of friends and/or family because they are more likely to give honest opinions. The feedback isn¶t biased. The emergence of online discussion boards, blogs, social networks, and YouTube has put the use of word of mouth marketing in over drive. According to Erickson (2005), ³At this unique point in the information revolution, the modern media that has caused the overload has also made
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Word of Mouth Marketing

word of mouth much more accessible.´ This simply means that consumers has unlimited access to information about any type of product or item that they are considering purchasing because of the revolution of technology. Word of mouth is now known as the ³buzz´ (Pai). The ³buzz´ is new term for spreading a vast of amount of information. According to Hall (2007), ³In earlier periods we have referred to this as ³buzz,´ with a focus on the hot new thing, but that is really to narrow. It also applies to the not-so-hot old things too, and research shows its influence grows daily.´ This information can be spread in large amounts in a short amount of time because of the growth of the internet and its many features. The bulk of my research is based on word of mouth marketing for small businesses such as hair salons. I utilized surveys, questions and interviews to get a better understanding of how effective WOMM can be for small businesses. WOMM is essential for small businesses because they don¶t have access to resources to create a mass advertising campaign. According to White Papers (2007), ³Small businesses, in particular, often do not have the resources to conduct ongoing advertising campaigns.´ This is why WOMM is the most utilized form of marketing for small businesses. Small businesses do uses ³one and done´ commercials, radio commercials, and newspapers ads, as well (White Paper, 2007). The first element of my research is a survey. I surveyed 20 random women. The survey included several questions in reference to what hair salon do they prefer, how did they hear about the salon, satisfied with service etc. (Survey 1 in Appendix I).

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Word of Mouth Marketing

Figure 1.0

Why I Chose My Salon
Recommendation Walk-In Radio Ad Craigslist

10%

5%

25% 60%

Figure 1.0 shows the results of my survey. Over fifty percent of the women that I surveyed actually visit a salon because it was recommended by a peer. The recommendation came from someone such as a friend, family-member, classmate, co-worker, etc. The results show the strength of recommendations. From my personal experience, I currently get services from a salon that was recommended by a friend. The salon was recommended because I was discussing a particularly style that I wanted to achieve and my friend told me about a salon that provided the service and does great work at affordable prices. I decided to visit the salon without even seeing any of their work, but simply because it was highly recommended. I currently still visit the salon, as well as recommended it to several of my other friends. Of the twelve ladies that actually chose recommendation as the reason they visited their chosen salon, I also did a survey. The survey consisted of several questions about the experience once they visited the salon based on the recommendation. (Survey 2 in Appendix II).

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Word of Mouth Marketing

Figure 2.0

My Experience at Salon
Satisfied Not Satisfied Neutral

33%

58% 9%

Figure 2.0 shows that of the twelve individuals that visited the salon based on a recommendation, fifty-eight percent was actually satisfied. Satisfied customers will more than likely become a returning customer. Returning customers are a strong representation of customer loyalty as well as word of mouth marketers for your business. The satisfied customer will tell people about the positive experience and even recommend it to friends. This is why is important for companies to hold true on their promises on their product and services. Another element of my research was an interview with a local salon owner out of Fayetteville, NC. (See the interview questions and answers in Appendix III). The interviewed included a variety of questions. The bulk of the questions involved the importance of customer service. The owner of the salon stated that ³provided quality service is the key to a satisfied customer.´ In her salon she preaches the importance of being polite, very professional, giving 100% effort, and being focused on the task at hand. All of her employees operate on these key
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Word of Mouth Marketing

principles and by doing so they have created a large customer pool for a small salon. On a weekly basis, she said that they can get anywhere from 25-50 new customers. The bulk of these new customers come because of a recommendation from another customer. My research is based on a local hair salon out of Fayetteville, NC. It¶s a very simple study, but shows volume of the impact of WOMM. It¶s important for small businesses to provide quality service because this is how they create a strong customer based via word of mouth. Most small businesses do not have access to abundant resources to implement large advertising campaigns, so WOMM is an inexpensive yet effective way to market.

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Word of Mouth Marketing

References Bayus, B. ³Word of Mouth: The Indirect Effects of Marketing Efforts.´ Journal of Advertising Research 25, 3 June/July (1985): 31-39 Erickson, K. ³The History of Word of Mouth Marketing´ Agri Marketing, 43, 6 July/August (2005): 42 Erickson, K. ³Why Word of Mouth Works´ Agri Marketing, 43, 7 September (2005): 38 Lee, A., Lam, D., and Mizerski, R. ³The Effects of Cultural Values in Word-of-Mouth Communication.´ Journal of International Marketing 17, 3 (2009):55-70 Seema, P. and Siddarth, S. ³The Impact of Word-of-Mouth on Purchase Decisions: The Case of Motion Pictures´ ³White Papers: Tips for Effective Word of Mouth Marketing´ gL Market Research, November Vol. 1 (2007).

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Word of Mouth Marketing

Appendix I: Survey 1 1. How did you find your current hair salon? o Recommendation (friend, family, etc.) o Walk-In o Radio Ad o Other (Craigslist, etc.) 2. How would you rate your first experience at the salon? o Satisfied o Neutral o Dissatisfied 3. How likely will you return? o Highly Likely o Likely o Not Likely

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Word of Mouth Marketing

Appendix II: Survey 2 1. Where you referred to this salon by a friend or family member? o Yes o No 2. Where you satisfied with the service? o Yes o No o Somewhat 3. Are you still currently visiting the salon? o Yes o No

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Appendix III: Interview Q&A 1. Why do you think your business has been successful? a. I feel my salon has been successful because I have continued to provide excellent service for a long period of time. This has allowed me to build a strong customer base. 2. How do you maintain a satisfied customer? a. The obvious answer is excellent customer service. It¶s important to provide quality service is the key to a satisfied customer.´ 3. What principles do you encourage in your salon? a. I expect for all of my employees to treat our customers the way they would want to be treated. My employees are very polite, hard workers, and love their job. Their positive attitudes show through their work. It¶s also important for my employees to always be professional.

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