Remember the last time you had a great experience with a product or service and had to tell your friends about it? It might have been your new phone, an app or a recently opened coffee shop. Whether you talked about it in a random conversation or recommended it when asked by your close ones, this is the word-of-mouth (WOM).
Word of Mouth represents a recommendation coming from one person to another.
Why is Word of Mouth important?
There are a few reasons actually:
- It represents the most powerful form of advertising
According to a Nielsen study, 83% of the respondents trust recommendations from friends and family more than any other source.
- It doesn’t stop after the first interaction
One good recommendation can create a chain of positive feedback that can spread fast. Making it a great vehicle for exposure and distribution. Unfortunately, this is true for the bad ones as well.
- It’s free
Companies spend 70% of their digital budget on Google, Facebook and Amazon. This means stronger competition and more power for the FAANG family. On the other side, Word Of Mouth is free. If the customers have a good experience with your product or service they will recommend it to their friends and family.
How to measure Word Of Mouth
Word of Mouth is hard to measure because it happens mostly outside the channels tracked by companies.
We usually share our opinions face to face or through dark social (untracked communication channels like messengers, text messages or email).
Regardless, people have tried different methods:
The notorious metric made famous by Frederick F. Reichheld in his famous article from Harvard Business Review – “The One Number You Need to Grow” is probably the most popular way people try to measure WOM. The author claimed that the NPS is strongly correlated with repeated purchases and referrals. Later studies show it isn’t. The main reason is that it tries to predict future behavior. It’s a big difference between what users say they will do in the future and what they will eventually do. Imagine asking a study participant one single question: “Are you going to give up alcohol?”.
- Attribution Surveys
Basically asking people how they heard about the product. This solution is not perfect either. Surveys have a low response rate and people answering them are different from the ones that do not. The opinions of those that choose not to answer are equally important.
- Social Listening Tools
Crawling social platforms and the web in order to track mentions and engagement. These also miss dark social and offline word of mouth, but are more close to an actual recommendation. Unfortunately there is a lot of noise (like marketers promoting their products and services) that makes it inaccurate.
- Word of Mouth Coefficient
Defined by Yousuf Bhaijee from Reforge, the WOM Coefficient is the number of new organic users divided by active users (returning users + non-organic new users). For now, it seems to be the most accurate method for measuring WOM.
For example, if the denominator of your WOM Coefficient is WAU (Weekly Active uUsers), and the coefficient is 0.1, that means every WAU generates 0.1 new users per week via Word Of Mouth. Or in simpler terms, for every 10 weekly active users, they will generate 1 new user via word of mouth.
The Word of Mouth has two components:
New Organic Users = first time product users that cannot be tracked. They are considered to be driven by word of mouth.
Active Users = everyone else (returning users + organic new users). The time period depends on the retention metric. For most products it is typically Daily, Weekly, or Monthly Active user.