Rely on word of mouth to market your product

The explosion of social networking sites has been a boon for direct marketers. For the hundreds of millions of users of Facebook, MySpace, YouTube and so on, they are fun ways to communicate with their friends and make more friends. But for marketers they are huge databases of consumer information.

This information is used increasingly by direct marketers as an efficient and cost-effective way to send targeted promotional messages to customers. But is it the best way?

Not so, according to new research by Peter Zubcsek, a PhD candidate in management at Insead, and Miklos Sarvary, Professor of Marketing.

"Current direct marketing techniques are designed to treat individual customers as independent consumption units and generally ignore the structure of customer communication networks," PhD candidate Zubcsek said. "This is a mistake."

Effective means

A powerful driver of consumer behaviour, word-of-mouth has been recognised as the most effective means of advertising. Ignoring it can be costly, the authors say.

In their paper, Direct Marketing on a Social Network, Zubcsek and Sarvary examine the influence of social networking on direct marketing strategies.

"In my research, I'm trying to summarise a few new techniques that are becoming relevant [to] our understanding of how to do marketing in this new environment where we have social networking sites (and) video sharing sites, where our cell phones are smarter and smarter," Zubcsek said.

Due to the new technologies a lot has changed. And there are ways of discerning who is a sophisticated user of technology and who can use the multiple services provided by a website or mobile operator. "This kind of differentiation didn't mean anything to marketing firms 15 years ago because there was no technology to use," Zubcsek said.

Now it does. For marketers the interesting thing about this is that the network structure maps the communication channels.

As a result, they can actually identify the channels for word-of-mouth communication and potentially have a good idea about who is talking to whom and what they are talking about.

Except for the cost of creating the video and launching it, direct marketers invest far less by using word-of-mouth techniques such as this, compared to sending customised, private messages to every subscriber in a network.

"They will save money by not sending those messages, and they will actually gain on the revenue front because they will probably get a better response by the word-of-mouth messages than the direct marketing messages," Zubcsek said.

Rob Goldsmith is an INSEAD Knowledge member — an online portal showcasing the business research of INSEAD business school, which has a Middle East campus in Abu Dhabi.