Monday, November 07, 2005

Measuring WOM: Advocacy Drives Growth in UK Companies

Be sure to check out a study conducted by Paul Marsden and colleagues at the London School of Economics (LSE) on how advocacy drives growth in UK companies (PDF download of report). In their study, they replicated the use of the net promoter score for UK companies as a way of predicting revenue growth (the net promoter score is a measure that indicates how likely people are to recommend to others a brand, product, or service in comparison to those who are neutral or would recommend against the brand; a higher score indicates that more people are spreading positive recommendations than negative recommendations).

Here are some points I found interesting (I've also included some additional comments gleaned from an e-mail conversation with Paul about the findings):

1) The research was able to correlate the net promoter score with revenue growth in the UK companies. This represents an important contribution because it increases confidence in the link between WOM and revenue growth, and the utility of the net promoter score to predict growth in a culture outside of the U.S.

2) The average net promoter score for UK companies was much lower than US companies (3% versus 11%). The study didn't go into details to explain the difference, but speculating, the difference might be explained due to cultural differences in terms of WOM communication practices. For example, Paul brought up the example in US political campaigns where those in the US might be more likely to advocate while those in the UK might be more reserved or express more cynicism or criticism.

3) Negative WOM recommendations (e.g., "Don't buy X"; NWOM), on its own, predicted growth but positive WOM recommendations (PWOM) didn't. These findings are consistent with existing research on social influence that would suggest NWOM has more of an impact than PWOM. Though see some contrary evidence regarding positive and negative WOM from Robert East's work (Kingston University).

4) The study contends that WOM drives growth rather than vice versa. This is a little trickier since the study uses correlational data to infer causation, but the article does provide compelling evidence to support its claim. For example, the net promoter score correlated with growth figures in the same year, but growth from the prior year (2002-2003) didn't correlate with the net promoter score for the following year (from 2003-2004). It seems an even stronger case could be made if we had the growth figures from 2004-2005; the goal would be to see if these numbers are correlated with the net promoter score from the prior year (2003-2004).

5) The LSE researchers hope to extend their research into WOM advocacy as predictors of productivty (the "likelihood that employees would recommend working for their company to friends or colleagues") and share growth (the "likelihood that investors would recommend investing in a company to friends or colleagues"). I'm looking forward to learning more!

By the way, Paul is also an Advisory Board member of WOMMA.