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Jim Calhoun is the CEO/Founder of Popular Media and a Silicon Valley veteran. Before founding PopularMedia, Jim was a co-founder of CustomerClick LLC, a multi-million dollar direct marketing firm whose clients include Yahoo!, UnitedHealthGroup, and ABC Television. Previously, Jim served as Vice President of Products at NetObjects, Inc. He is a graduate of the University of Missouri School of Journalism.

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Word-of-Mouth’s Ethical Effect: How Fair and Decent Marketing Can Increase your Initiative’s ROI

Written on
January 25th 2007
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by Jim Calhoun  |
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There’s been a lot of recent talk about ethics in word-of-mouth marketing. As stealth marketers and shills get more negative press, the calls for transparency and honesty are coming from an unlikely source: marketers themselves.

Few advocates give concrete reasons to practice ethical marketing beyond the fact that “it’s the right thing to do.” While treating your customers and prospective customers with respect certainly is the right thing to do, I’d like to add another compelling argument in favor of ethical marketing: it works.

You’ll get the higher quality, more sustainable results from word-of-mouth marketing initiatives when you follow ethical marketing guidelines. Using less-than-savory practices may yield a temporary “pop” in performance or awareness, but soon enough the sun shines through and you’ve burned those folks that are the lifeblood of your brand — people who recommend your products, services or content to others. This isn’t a question of good karma — it’s a consequence of the way the word-of-mouth channel works.

Ethical marketing

So what exactly is “ethical marketing” in word-of-mouth? What are the rules? How do they apply to customer evangelism, employee bloggers, tell-a-friend forms, and the 40 or more other types of marketing practices that fall under the umbrella of word-of-mouth marketing?

At its core, ethical marketing comes down to two things: be honest about the product or service and be honest about your stake in it.

The first half is simple enough: just apply the same FTC rules that you follow in your other marketing efforts. Don’t lie about your product. And avoid the temptation to use tactics that are technically legal, but misleading. Word-of-mouth lives or dies on whether consumers feel good or bad about you and your product, not whether they have legal recourse if they feel maligned.

More of the scandals in word-of-mouth marketing are related to honesty about your stake as a marketer in the product or service. Marketers who would never consider misrepresenting a product’s features or price in a print ad suddenly think it’s a good idea to pose as “independent” bloggers — and are invariably exposed and embarrassed.

Being honest about involvement with a brand or product actually increases your effectiveness as an advocate. Dr. Walter Carl, a leading researcher in word-of-mouth marketing, found that disclosure increased pass-along rates by as much as 70%* — a data point supported by our experience here at PopularMedia, Inc. Failing to disclose your involvement, however, can lead to massive consumer backlash — directly impacting your bottom line.

Why ethics matter more in word-of-mouth

In traditional marketing, you make your appeals directly to individual consumers through advertising, direct mail, or other channels. In this context, conversations between consumers have a comparatively small effect. As a result, if an individual consumer has a negative experience, it primarily impacts only that individual’s potential lifetime value — small stakes in a large market. Unfortunately, this can lead to a “take the money and run” attitude under which consumers are treated as disposable.

Word-of-mouth marketing is different. Marketing messages are spread through established peer-to-peer networks. Violate consumer trust at any point, and you could lose your chance to reach and convert an entire branch of any given network: not just one person, but dozens, hundreds, thousands, hundreds of thousands — even millions of people. This effect is immediate and enduring, meaning the decisions you make today will measurably impact your performance now and for a long time into the future.

How word-of-mouth spreads

The most important thing to remember is that word-of-mouth doesn’t spread randomly from person to person. If it did, you could bypass unhappy consumers and still reach their friends through other mutual acquaintances. After all, there is extensive overlap in social networks ¬— it seems like there should be as many different ways to get a message from person A to person B as the two people have friends in common.

By that metric, viral performance appears to be proportional to the number of “agents” you have, as long as each talks to as many people as possible with the hope that those people will pass the message along — and buy your product — at a given rate.

However, striking patterns emerge when you start to measure pass-along, conversion, and other key metrics — what we refer to internally and with our customers as viral performance indicators (VPIs) — for the “receivers” as well as the “senders” of your messages.

A graph of word-of-mouth conversations will resemble a complex web. Each person is represented as a point or “node”, connected to a number of other points by conversations or shared messages about your brand or product. But when you highlight only the successful conversations — the small percent that actually drive action and pass-along — your graph suddenly looks less like a web and more like a branching tree, with bursts of action connected by a small number of key individuals.



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Reader Comments.

Hello Jim,

I found your article to be well thought, persuasive and informative. Thank you. I have one question: You write that your company’s data supports Dr. Carl’s assertion that disclosure extends pass-along rates by up to 70 percent. Could you share information about how you, too, have arrived independently at similar conclusions?

Kindly,
Joe Chernov
Director of Communications
BzzAgent

Posted by JoeC | 11:12 am on January 26, 2007.

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