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<p>How large and lasting are the effects of word-of-mouth (WOM) referrals versus paid marketing? What is the $ / € worth of a WOM-referral to an Internet social networking site? This study finds that word-of-mouth referrals have substantially longer carryover effects than traditional marketing actions. The long-run elasticity of WOM on site signups is 0.53; about 20 times higher than that of marketing events, and 30 times that of media appearances. Based on revenue from advertising impressions served to a new member of the site, the monetary value of a WOM referral is about $0.75 per year. By sending out 10 referrals, each network member thus brings in $7.50 to the firm; which represents the maximum reward the firm could consider to incentivize word-of-mouth referrals. Managers can use this approach and findings to benchmark metrics for both WOM and traditional marketing, to test changes in online WOM referral content, and to decide on the appropriate size of financial incentives to stimulate WOM. </p>
</abstract>

How large and lasting are the effects of word-of-mouth (WOM) referrals versus paid marketing? What is the $ / € worth of a WOM-referral to an Internet social networking site? This study finds that word-of-mouth referrals have substantially longer carryover effects than traditional marketing actions. The long-run elasticity of WOM on site signups is 0.53; about 20 times higher than that of marketing events, and 30 times that of media appearances. Based on revenue from advertising impressions served to a new member of the site, the monetary value of a WOM referral is about $0.75 per year. By sending out 10 referrals, each network member thus brings in $7.50 to the firm; which represents the maximum reward the firm could consider to incentivize word-of-mouth referrals. Managers can use this approach and findings to benchmark metrics for both WOM and traditional marketing, to test changes in online WOM referral content, and to decide on the appropriate size of financial incentives to stimulate WOM.

Do you Want to Be my “friend”? MONETARY VALUE OF WORD-OF-MOUTH MARKETING IN ONLINE COMMUNITIES

Robert H. Smith School of Business, University of Maryland, College Park, MD 20742 Tel: (301) 405-5878 Fax: (301) 405-0146

UCLA Anderson School, 110 Westwood Plaza, Los Angeles, CA 90095

Ozyegin University (Istanbul, Turkey) and at the Tuck School of Business at Dartmouth (Hanover, NH)

NIM Marketing Intelligence Review

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

How large and lasting are the effects of word-of-mouth (WOM) referrals versus paid marketing? What is the $ / € worth of a WOM-referral to an Internet social...

Do you Want to Be my “friend”? MONETARY VALUE OF WORD-OF-MOUTH MARKETING IN ONLINE COMMUNITIES

Published Online: Jul 19, 2014

Page range: 26 - 33

DOI: https://doi.org/10.2478/gfkmir-2014-0068

© 2014

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.