Word-of-Mouth Marketing: The money is where the mouth is

Barak Libai
Arison School of Business

A growing stream of research aims to quantify the economic value of word-of-mouth. Through examining examples such as ESPN, these studies have evaluated the monetary contribution, or 'social value', of customers.

How much value does advertising on a TV channel like ESPN create for brands, compared to other media outlets? Historically, the answer would focus on the effect of the specific ads on the purchase pattern, and, consequently, the additional money spent by ESPN viewers. However, this is only part of the story.

A study conducted for ESPN in which I was involved focused on the economic value ESPN viewers create by talking to their friends and affecting their consumption. Viewers (and their friends) of both ESPN and competitive media outlets were asked not only about their television viewership and their own consumption, but also on how they influence, and are being influenced, by word-of-mouth communications. The resulting data was used in a model of economic effectiveness where the results showed that the word-of-mouth related value of the ESPN users is almost three times higher than that of competitors. For a media outlet such as ESPN, such good news should serve as a very effective sales tool when working with prospective advertisers.