Firm-Created Word-of-Mouth Communication: A Field-Based Quasi-Experiment

Abstract:     
In this paper, we investigate the effectiveness of the firm's proactive management of consumer-to-consumer communication. We are particularly interested in understanding how, if at all, the firm should go about effecting meaningful word-of-mouth. To tackle this problem, we implemented a large-scale field-based quasi experiment in which a national firm created word of mouth through two (non-randomized) populations: loyal customers and non-loyal customers. We break our theoretical problem into two subproblems. First, we ask, What kind of WOM drives sales? Motivated by previous research, we hypothesize that the WOM that is most effective at driving sales occurs between acquaintances (not friends) and is created by non-loyal customers, not loyals. We find support for this. This result is also noteworthy as it demonstrates the potential usefulness of exogenously created WOM. Then, we ask, "Which agents are most effective at creating this kind of WOM?" In particular, we are interested in evaluating the effectiveness of the commonly-used opinion leader designation. While we find that for the agents that were very loyal to the product, opinion leadership was associated with the creation of more WOM, this was not the case for less loyal agents. This finding may present a challenge for a firm attempting to design a WOM campaign. In a final exploratory analysis, we suggest a measure of one's social network intensity as a predictor of effectiveness of non-loyals as potential buzz agents.

Keywords: word of mouth, promotion, advertising

JEL Classifications: M3, M31, M37

Working Paper Series