Wednesday, December 20, 2006

Flog Alert Repository?; Company Training About Ethics Violations

Does anyone know of a central place where people are keeping a list of all the companies who have engaged in stealth marketing (including flogs, or fake blogs)? The latest flog (over a week old now) seems to be Sony for their PSP: (see links below for stories covering this development; of course is not the first time for Sony as they messed around with stealth marketing with the Sony Beta 7 as well).

Sony, or at least one part of Sony, is a member of the Word of Mouth Marketing Association (for which I'm an advisory board member), so I would hope that at least some representatives from their company are learning about how social media works and the ethics involved so that no part of their company continues the use of stealth tactics.

The viral marketing firm that created the flog for Sony is Zipatoni (not a WOMMA member). According to a report in a MediaPost article, a person claiming to be a Zipatoni representative contends they advised Sony that there might be this backlash, but their client went ahead with it anyway (this information should be treated with caution, though, because none of this has been confirmed).

Anyway, this story, the Edelman fake blog scandal with Wal-Mart, and many other companies point to the importance of the education work that needs to be done within corporations about social media and ethics. At the latest WOMMA Summit in D.C. Rick Murray from Edelman gave an update on how his company has implemented a mandatory training program for all their employees. Further, they set up a 24/7 hotline where anyone around the world can call in with questions to make sure they are behaving in an ethically approriate way. They also engaged in a review of all their existing programs to ensure that there are no further violations of the WOMMA Ethics Code (at the time of the presentation they were 98% done). Read this post for more details about what Edelman is doing in response.

Other links about the Sony fake blog for PSP:

Sony 'fesses to fake blog. Still gets it wrong. -- Michael O'Connor Clarke

Oh Sony, What Were You Thinking? -- David Binkowski

Sony pays PR firm to lie about wanting a PSP for Christmas -- Videogamesblogger.comSony's holiday marketing campaign sniffed out -- Engadget

Sony Confesses To Creating 'Flog,' Shutters Comments -- Media Post Article

And be sure to check out the following link for a YouTube video created by gamers essentially saying that Sony is stupid for thinking that gamers are stupid and wouldn't figure out the flog.

Thanks to Constantin Basturea for some of the links above.


Tuesday, December 12, 2006

FTC Response on Word of Mouth Marketing Regarding Disclosure

I'm blogging today from the Word of Mouth Marketing Association Summit in Washington, D.C. We just heard a presentation from Mary Engle, Associate Director for Advertising Practices at the Federal Trade Commission. She discussed the FTC's response to a complaint received from Commercial Alert (see background on the complaint and FTC consideration here). She summarized their complaint as follows:

Commercial Alert states that it is deceptive for marketers to pay consumers to engage in buzz without disclosure of the monetary exchange. They sought investigation of "buzz marketing" practices and asked the FTC to issue guidelines and bring cases. (NOTE: Commercial Alert should be calling this "shilling" or "stealth marketing" rather than calling this buzz marketing).

Here's the quick summary, with more details below:

- when payment is made to a consumer, that payment, by law, needs to be disclosed;
- marketers do not need to get parental permission for teens 13-18, but do need permission if the kid is under 13 (consistent with COPPA);
- non-monetary compensation (such as free samples, reward points, swag, etc.) do not need to be disclosed by law, but the FTC referenced that the WOMMA ethics code requires disclosure regardless of payment.
Here are the details:

The FTC declined the request to issue specific guidelines for WOM marketing, arguing that they feel a case-by-case investigation and enforcement is adequate. However, they did issue an official response later stating the the FTC's Endorsement & Testimonial Guides are applicable to WOM marketing. The FTC states that paid WOM advocacy fits the following definition of endorsement:
"An endorsement is any advertising message that consumers believe represents the opinions, beliefs, experience, etc. of a person other than the sponsoring advertiser" (Slide 8)
The Endorsement Guides require disclosure of the relationship between a seller and endorser "that might materially affect the weight or credibility of the endorsement" (Slide 9). They define a material connection as "one that isn't reasonably expected by the audience" (Slide 9). They also provide the following examples of these relationships: 1) seller is paying endorser, 2) endorser is related to seller, and 3) endorser is business associate of seller.

Their reasoning is that consumers wouldn't normally expect that someone has been paid to talk to them about a product. Further they suggest that consumers may give more weight to Person A's views rather than Person B's views if they know that Person A is independent from a seller while Person B is getting paid. Therfore, the reasoning goes, "Under the FTC Endorsement Guides, financial tie between the seller and paid agent should be disclosed."

Ms. Engle's presentation also addressed if the WOM program participant isn't paid, is disclosure still required? The FTC argues that it depends on whether consumers would give more weight to an endorsement if payment was or wasn't involved. It also notes that WOMMA's ethical guidelines call for disclosure even when there isn't payment. (For a research study about the potential business benefits of disclosure and guidelines for companies, please read my "To Tell Or Not To Tell?" report).

The Commercial Alert complaint also expressed concern about children's involvement in WOM marketing programs. The same disclosure applies in these cases. But what about parental consent? If a marketer solicits participation of kids under 13, then marketers need to comply with COPPA (Children's Online Privacy Protection Act), which means parental consent is required. But outside the scope of COPPA, the FTC doesn't enforce any other law that requires parental approval.

Download Mary Engle's Presentation from the FTC
(opens into PDF file)
Commerical Alert's Reaction (Dec 11, Dec 12)
WOMMA's Reaction
Download To Tell Or Not To Tell? Research Report (link to download page)

Disclosure: Advisory Board Member of WOMMA


Sunday, December 10, 2006

What Some Leading Academic Researchers on Word of Mouth Marketing Are Up To

On Monday, I'll be giving the "State of Word of Mouth Research and Measurement" talk at WOMMA's Research Symposium. I'll be reviewing some of the latest academic research that affects the WOM marketing industry and offering a modest proposal of research priorities for the upcoming year.

You can find my a copy of my presentation handouts here.

As part of the research for my presentation I interviewed some of WOMMA's academic advisory board members, some of the leading researchers working on WOM. I asked them to give me a description of their current projects. Some of their projects have been published already while others are in the earlier stages as working papers.

Because I won't have time to discuss all of this in my presentation Monday morning, I am attaching this PDF file as a supplement to my talk. To learn more about the WOMMA Advisory Board members please visit the Advisors page on WOMMA's website. And to learn more about other industry and academic research studies please download the WOM Bibliography Project from my download page.

Please note that this is a very selective and partial list so it's not meant to exlucde anyone. Any other folks who are doing interesting work in this area should feel free to contribute an update in the comments section to this post.

Also be sure to check out the latest research book published by WOMMA: Measuring Word of Mouth, Volume 2. (Disclosure: I served as the workgroup leader editing this volume).

Download presentation supplement


Tuesday, December 05, 2006

WOMBP: December 2006 Update

The latest version of the WOM Marketing Communication Bibliography Project (WOMBP) is now uploaded. You can access it at my download page.

Here's the background of the project and details of the contributors.

Below are new entries in this version (these aren't necessarily new studies, they just weren't included in the last update):

Anderson, E. W., C. Fornell, et al. (2004). "Customer Satisfaction and Shareholder Value." Journal of Marketing 68: 172-185.

Chandon, P., V. G. Morwitz, et al. (2005). "Do Intentions Really Predict Behavior? Self-Generated Validity Effects in Survey Research." Journal of Marketing 69: 1-14.

Dawar, N., P. M. Parker, et al. (1996). "A Cross-Cultural Study of Interpersonal Information Exchange." Journal of International Business Studies 27(3): 36.

Dholakia, U. M. and V. G. Morwitz (2002). "The Scope and Persistence of Mere-Measurement Effects: Evidence from a Field Study of Customer Satisfaction Measurement." Journal of Consumer Research 29(2).

English, B. (2000). "Pitching her tent "word of mouth", plus author Anita Diamant's promotional moxie, make for success." Boston Globe February 24, 2000: F1.

Helm, S. (2003). "Calculating the value of customers' referrals." Managing Service Quality 13(2): 124-133.

InfoMag (2006). "Surging Interest." InfoMag.

Kiecker, P. and D. Cowles (2003). "Interpersonal Communication and Personal Influence on the Internet: A Framework for Examining Online Word-of-Mouth." Journal of Euromarketing 11(2): 71-88.

Mittal, V. and W. A. Kamakura (2001). "Satisfaction, Repurchase Intent, and Repurchase Behavior: Investigating the Moderating Effect of Customer Characteristics." Journal of Marketing Research 38(1).

Morgan, N. A. and L. L. Rego (2006). "The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Business Performance." Marketing Science 25(5): 426-439.

Nicks, S. (2006). "What Not to Do With Net Promoter." Business Week Online August 1, 2006.

Oliver, R. L. (1999). "Whence Consumer Loyalty?" Journal of Marketing 63(Special Issue): 33-44.

Stokes, D. and W. Lomax (2001). "Taking Control of Word-of-Mouth Marketing: The Case of an Entrepreneurial Hotelier." Kingston Business School 44: 1-18.

Story, L. (2006). "What We Talk About When We Talk About Brands." The New York Times November 24, 2006.

Systems, S. (2004). "Growing your business with Net Promoter." White Paper: 1-11.

TARP "Measuring the Grapevine-Consumer Response and Word-of-Mouth." TARP White Paper: 1-25.

Vox, M. (2006). "Moms: WOM's Good, So's Online." Marketing VOX Online.

Wangenheim, F. V. and T. Bayon (2003). "The effect of word of mouth on services switching; Measurement and moderating variables." European Journal of Marketing 38(9/10): 1173-1195.

Yu, L. (2005). "How Companies Turn Buzz Into Sales." MIT Sloan Management Review Winter 2005.


Monday, December 04, 2006

"One Question, and Plenty of Debate": More Scrutiny of the Net Promoter Score

Readers of my blog know I've been following the recent academic research seeking to establish a relationship between likelihood to recommend metrics and business performance measures. In these articles the Net Promoter Score (NPS) has come under intense scrutiny.

The first study was the Morgan & Rego study published in Marketing Science (see series of posts beginning with this one for a summary). This is a very interesting study to read but a significant limitation was that it did not calculate the NPS as the creators do (Fred Reichheld, Bain, and Satmetrix), thus it wasn't an apples-to-apples comparison. This same limitation was noted by other researchers as well (see this post for details) and a paper has been submitted to correct and clarify this point (Keiningham, Aksoy, Cooil, and Andreassen, 2006; see Footnote 1 below for citation). Interestingly, this corrected study was also referenced on Fred Reichheld's Net Promoter blog.

But now it's Monday, and Monday's the day for big news to come out, so here we go... In today's Wall Street Journal Scott Thurm reports in his article "One Question, and Plenty of Debate" (subscription required) about a new study that calls into question the relationship between the NPS and business performance. The study was written by the same authors who penned the correction and clarification article in Marketing Science (Keiningham et al.) and it will be published next year in the Journal of Marketing, another very well-respected marketing journal.

According to the WSJ article, this new study was unable to replicate the claims made by Mr. Reichheld, Bain, and Satmetrix that "net promoter scores are better indicators of revenue growth than other customer-satisfaction measures." Further, for two of the industries (airlines and personal computers) cited in Mr. Reichheld's book (The Ultimate Question), the researchers found that a different customer-satisfaction measure, rather than NPS, better explains revenue growth.

Mr. Reichheld is quoted in the article making the point that too much is made of the correlation between NPS and revenue growth and that focusing on this correlation is missing the "forest for the trees." Instead he states that NPS is effective "because it forces top executives, and other managers, to focus on creating happy customers" (this quote was parahrased by the journalist in the article).

The WSJ article goes on to say that this is a consequential issue because many executives are making managerial decisions based on the use of the NPS metric and that critics "are trying to protect executives racing to adopt the net-promoter metric," expressing concern that "the corporate boardroom is probably misinterpreting the importance of this" (the latter quotation is from V. Kumar, a marketing professor at U of Connecticut School of Business, who will also be publishing a study soon that questions the link between NPS and business performance).

The new study by Keiningham et al. entitled "A Longitudinal Examination of 'Net Promoter' on Firm Revenue Growth" is currently embargoed (except for citation in academic journals) until its publication in 2007. However, through correspondence with the first author, I have learned that interested readers can download an executive summary here. The executive summary provides an overview and gives sufficent detail to illustrate that the methodology used was much closer to the methodology used by Mr. Reichheld, Bain, and Satmetrix.

I'll have more to say on the executive summary in a future blog post as well as what this latest research finding means for companies and the WOM industry. I'll also be referencing this debate on the NPS, among many other metrics and research traditions, in my "State of Word of Mouth Research and Measurement" presentation at the WOMMA Research Symposium on Dec. 11th in Washington, D.C.

Disclosure: I was interviewed for this Wall Street Journal article and I am on the Advisory Board for the Word of Mouth Marketing Association.

1. Keiningham, T., Aksoy, L., Cooil, B., & Andreassen, T. W. (2006). Net Promoter, Recommendations, and Business Performance: A Clarification and Correction on Morgan and Rego. Manuscript submitted for publication.