Sunday, January 14, 2007

Understanding the Buzz That Matters: Negative vs Positive Word of Mouth

There's a new article* out about the relationship between positive WOM (PWOM), negative WOM (NWOM), and revenue growth, following in the tradition of research about the Net Promoter Score. The article is by Alain Samson, from the London School of Economics and Political Science, and was published in the International Journal of Market Research.

Here's the abstract:

This article discusses negative and positive consumer word of mouth (NWOM and PWOM) in a mostly quantitative context. Based on the correlations between WOM and business growth found in Marsden, Samson and Upton’s (2005) ‘Advocacy Drives Growth’ study, possible explanations for the superior predictive power of NWOM are presented. It is suggested that, similar to the Net Promoter® Score (NPS), NWOM is a good measure to capture both loyalty and advocacy among existing customers, while negative information may also have a strong effect on purchase decisions by potential customers. The number of brand choices and brand commitment are addressed across industries. It is proposed that brands (particularly services) in high-commitment/low-choice sectors have to be more sensitive to NWOM, while PWOM may be a better predictor for business growth in low-commitment/high-choice industries. Finally, using data from ‘Advocacy Drives Growth’, a new WOM measure in the form of a ‘Net Advocacy Score’ is presented.
The article is interesting for a couple reasons. First, Samson argues that the impact and utility of PWOM and NWOM depends on two factors: a) the industry (high/low choice and high/low commitment) and b) whether you analyze WOM from the perspective of customer retention (loyalty) or customer acquisition (advocacy).

The second reason it's interesting is because it seeks to extend the utility of the Net Promoter Score (the number of people who would be highly likely to promote or recommend a brand to a friend minus the number of people who would detract from the brand) by incorporating actual WOM behavior rather than just behavioral intentions (i.e., the likelihood of a recommendation, which is what the NPS measures). The new metric is called the "LSE Net Advocacy Score." In short, it combines the Net Promoter Score with reported NWOM, and is calculated as follows:
Net Advocacy Score = NPS - NWOM
(NWOM refers to the percentage of customers reporting making very negative comments in the past 12 months.)

According to Samson, a two-point increase in the Net Advocacy Score roughly corresponds to a 1% increase in revenue growth, at least for industries where there is relatively low-choice and high-commitment brands (in this case, mobile phone networks, retail banks, and supermarkets).

A couple limitations to keep in mind when reading this article. First, it was published as part of a Forum in this journal so it doesn't have a full-blown presentation of the methods and results used in the analysis. Greater detail will be important to validate the evidence presented in this article by other researchers. Also, the relationship between NPS and revenue growth has recently been called in to question by other academic researchers. Since the Net Advocacy Score (proposed in the present study) relies on the NPS in its calculations (NAS = NPS - NWOM), then additional research on the Net Advocacy Score should address the recent critiques of the NPS.

Here's my blog post about the "Advocacy Drives Growth" study.

Here's a link to the "Advocacy Drives Growth" study (PDF).

Be sure to read my other blog posts about the role of negative and positive WOM.

* Samson, A. (2006). Understanding the buzz that matters: Negative vs positive word of mouth. International Journal of Market Research, 48, 647-657.