Decomposing the Value of Word-of-Mouth Seeding Programs: Acceleration versus Expansion

Abstract

In word-of-mouth seeding programs, customer word of mouth can generate value through market expansion; in other words, it can gain customers who would not otherwise have bought the product. Alternatively, word of mouth can generate value by accelerating the purchases of customers who would have purchased anyway. This article presents the first investigation exploring how acceleration and expansion combine to generate value in a word-of-mouth seeding program for a new product. The authors define a program's “social value” as the global change, over the entire social system, in customer equity that can be attributed to the word-of-mouth program participants. They compute programs’ social value in various scenarios using an agent-based simulation model and empirical connectivity data on 12 social networks in various markets as input to the simulation. The authors show how expansion and acceleration integrate to create programs’ social value and illustrate how the role of each is affected by factors such as competition, program targeting, profit decline, and retention. These results have substantial implications for the design and evaluation of word-of-mouth marketing programs and of the profit impact of word of mouth in general.