What's the value of Word of Mouth?

While it's true that there are businesses that never spend money on advertising, they do spend it on marketing.

That's becasue of the broad scope of "Marketing" includes anything from the way they answer the phone to signage, etc.

Take a look at this from Warc.com:

Word of mouth has greater impact than ads

NEW YORK: Marketing campaigns that encourage considerable word of mouth among consumers have a greater impact on sales than more traditional forms of advertising, according to McKinsey.

The consultancy argued that word of mouth is the "primary factor" behind between 20% and 50% of purchases, with a particular relevance in relation to expensive products and first-time acquisitions.

It added that an advertising "overload", growing mistrust of marketing and the social media-driven shift in control away from companies and towards consumers have all encouraged this trend.

More specifically, an individual's direct experience with a brand was found to generate something in the region of 50% and 80% of all word of mouth.

"Consequential" word of mouth driven by marketing and "intentional" word of mouth based on formal corporate efforts – such as brands hiring celebrity endorsers – made up the majority of the remainder.

A detailed study of the mobile phone sector showed advertising had an influence score of 30% in mature markets at the "initial consideration stage", with previous usage on 26% and word of mouth on 18%.

Information gathered from online sources played the most significant role in the "active evaluation phase" with a rating of 29%, falling to 20% for shopping and 19% for word of mouth.

These factors retained their pre-eminence at the moment of purchase, although data collected from the internet held an even higher weight of 65%, with shopping on 20% and word of mouth on 10%.

By contrast, word of mouth was the main influence across the entire process in emerging markets, posting 18% at initial consideration, 28% at active evaluation and 46% at the point of purchase.

Advertising took second place during each phase, reaching a peak of 40% at the end of the cycle, with previous usage trailing in third in each case.

When assessing the "equity" of word of mouth, McKinsey said recommendations from a "trusted source" like a friend or family member was 50 times more likely to persuade someone to buy a brand.

Elsewhere, influentials, making up some 9% of the population, produced around three times more word of mouth than the norm, with the 1% of "digital influentials" also boasting "disproportionate power".

McKinsey cited the example of Apple's launch of the iPhone in Germany, where it was the subject of just 10% of word of mouth in the category, a third less than the market leader.

However, this activity was five times more powerful than that for its rival – and six times more powerful than Apple's paid-for media – because of the perceived authority of these "influentials".

"Marketing-induced consumer-to-consumer word of mouth generates more than twice the sales of paid advertising in categories as diverse as skincare and mobile phones," McKinsey added.

Red Bull was also credited with effectively using celebrities and other "opinion makers" to champion its brand, while Miele and Lego achieved this result by involving customers in the innovation process.

Messages passed among consumers that emphasized “important product or service features” were also found to have a more substantial impact than general or emotive comments.

Equally, the sharing of information in small, closely-connected groups delivered better returns than interactions in "dispersed communities" due to the stronger levels of trust between participants.

This even applies on social networks like Facebook and Twitter, where individuals can have hundreds of friends, but still typically only value the input of a limited number of their contacts.

Data sourced from McKinsey; additional content by Warc staff, 21 April 2010

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