In a study released in April of 2008 entitled, “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site,” researchers Michael Trusov, Randolph E. Bucklin, and Koen H. Pauwels found that the elasticity (the change in sales resulting from each dollar spent) of word of mouth marketing is roughly 30 times higher than that of traditional marketing.
In the study, researchers focused on “electronic referrals in social networking” with the goal of developing a model to estimate the elasticity, both short and long-run, for word of mouth referral activity at the site. Researchers then compared these elasticity estimates with those obtained for two forms of traditional marketing communications: Media appearances (public relations) and event marketing – the main company-sponsored marketing activity at the time.
The study not only found that word of mouth elasticity is about 20 times higher than the elasticity for marketing events, and 30 times that of media appearances — but also that this difference grows over time.
Download the study.
Thanks to Dave Dolak for highlighting the research.
