• Expert Advice

Franchise marketing departments may spend millions of rands on elaborate advertising campaigns, when what really makes up a consumer’s mind is free: a word-of-mouth recommendation from a friend or colleague.

According to research by business consultants McKinsey (McKinsey Quarterly – April 2010) this simple marketing tool is far more relevant in developing countries like South Africa and the rest of Africa, than it is in mature economies where more credit is given consumer’s own internet research. Bear in mind too that there is a strong component of word-of-mouth in such internet research through the prevalence of internet communities.

Word of mouth is consumers’ preferred means of choosing

The McKinsey research showed that when it came to final purchase, consumers in developing countries would make a choice based on word of mouth 46% of the time, compared to 40% based on advertising and 9% based on previous usage.

This compares to mature economies where the equivalent decision would be based on:

• internet 65% of the time (much of which, as mentioned, can itself be word of mouth),
• actual shopping around 20% of the time, and
• direct word of mouth still a respectable 10%.

When it comes to evaluation of the product, in developing countries consumers would rely on word of mouth 28% of the time, compared to advertising 26% and previous usage 13%.

In mature economies, these percentages were

• 29% for internet,
• 20% shopping around and
• 19% word of mouth.

Among the conclusions of the McKinsey report were that consumers are being overwhelmed by product choices and tend to ‘tune out’ the ever-growing barrage of traditional marketing, while word of mouth cuts through the noise quickly and effectively.

The McKinsey Quarterly Report therefore shows that positive word of mouth has more than twice the impact of traditional advertising. Most franchise owners are of course aware of this, but may do well to look at their staff training and customer service in this new light. It should lie at the heart of one’s promotional activities that personal recommendation is the primary factor behind 20 to 50 percent of all purchasing decisions – and even more so, given that McKinsey reports its influence is greatest when consumers are buying a product for the first time.

Cutting through the noise

Word of mouth is the easiest way to cut through the sheer volume of information available to consumers today. Whether its radio advertising, television, newspaper and blatantly in-your-face outdoor advertising, consumers have become both overloaded and increasingly skeptical about traditional company-driven advertising and marketing. They increasingly prefer to make purchasing decisions largely independent of what companies tell them about products.

The rise of online communities and communication has dramatically increased the potential for word of mouth influence. The McKinsey research shows that in the mobile-phone market, for example, it has observed that the pass-on rates for key positive and negative messages can increase a company’s market share by as much as 10 percent or reduce it by 20 percent over a two-year period, all other things being equal.

This effect alone makes a case for more systematically investigating and managing word of mouth.