COMMUNITIES, WORD OF

MOUTH & MARKETING

KAI HUOTARI

Helsinki Institute for Information Technology HIIT

Seminar on New Business in Digital Economy

28.2.2008

Agenda

• From HIT era to Niche Era

• WOM as a Marketing Tool

• WOM in the niche era

• Communities - a double edge sward

• 19th Century was dominatedby Mass Media

• Broadcast Media fabricatedunprecedented hits andsuccess stories

• But in the 1990’s thingsstarted to change. Whathappened?

From HIT era to NICHE era

From HIT era to NICHE era

• HITs weren’t as big anymore

• The number of media channels exploded

• Audience sizes decreased

• Digital revolutionForce Business Example

1Democratize

Production

Long Tail

Toolmakers,

Producers

Digital Videocameras,

desktop music and video

editing software, blogging

tools

2Democratize

Distribution

Long Tail

Aggregators

Amazon, eBay, iTunes,

Netflix

3

Connect

Supply and

Demand

Long Tail

Filters

Google, blogs, Rhapsody

recommendations, and best

seller lists,

Source: Chris Anderson, The Long Tail, 2006

From HIT era to NICHE era

• Problems of the HIT system– products have to be targeted to the largest

possible audience compromises in contentand audience size.

• La Bamba

– Only a portion of the production can enter themarket considerable potential sales loss

• every year around 13 000 films are presented infestivals in US

• Only 500 get distributed in theaters

• Only 100 will make profit

– Pareto’s 80/20 seems to apply

From HIT era to NICHE era

• 98% rule

– Netflix, online film rental service, out of the25 000 films available at least 98% sold atleast once per quarter.

– Same thing with iTunes (98% of 1 million),Ecast (98% of 10 000) & Amazon books(98% of 100 000)

• Enormous potential in the NICHEmarkets

From HIT era to NICHE eraP

op

ula

rity

Products

From HIT era to NICHE era

sales range titles Units

1 000 000 or more 10 17 396 510

500 000 to 999 999 22 13 798 299

250 000 to 499 999 64 22 252 491

100 000 to 249 999 324 46 932 031

50 000 to 99 999 767 51 858 835

5 000 to 49 999 23 047 280 000 591

1 000 to 4 999 67 008 149 093 614

100 to 999 202 938 69 548 499

sold 99 or less 948 005 14 346 417

Total 1,2 Million 665 Million+

Book Sales in US, 2004

Source: Book Industry Study Group, Long Tail

From HIT era to NICHE era

Force Business Example

1Democratize

Production

Long Tail

Toolmakers,

Producers

Digital Videocameras,

desktop music and video

editing software, blogging

tools

2Democratize

Distribution

Long Tail

Aggregators

Amazon, eBay, iTunes,

Netflix

3

Connect

Supply and

Demand

Long Tail

Filters

Google, blogs, Rhapsody

recommendations, and best

seller lists,

Source: Chris Anderson, The Long Tail, 2006

WOMWord of mouth (WOM) is

oral, person-to-person communication between

a perceived non-commercial communicator and

a receiver concerning a brand, a product, or a

service offered for sale

(Lau & Ng, 2001, p. 164).

definition

WOM- Spreads easily

- Persuasive

- Easily accessible from the memory

- Offers information that is not accessible

elsewhere

- Easily available

strengths

G

I

H

M

J

L

N

K

D

F

E

weak tiesWOM

Strength of weak ties:

Information spreads rapidly from one consumer

cluster to others

strong tiesWOM

M

J

L

N

K

D

F

E

strong tiesWOM

M

J

L

N

K

D

F

E

Strength of strong ties:

Information coming through strong-tie

relationships is persuasive.

& MindWOM

Vividly presented information, such as WOM, has more

influence on product judgment than pallidly presented

information, such as printed information.

Although the manner in which information is presented

does not affect its probative value, vividly presented

information has a disproportionate effect on judgment.

Furthermore, consumers are likely to overestimate the

diagnosticity of accessible information because

alternative inputs are likely to be overlooked.

marketingWOM

• Seven times more effective than newspaperadvertising

• Four times more effective than personal selling

• Twice as effective as radio advertising ininfluencing consumers to switch brands

• Some studies suggest that WOM is the ultimateproduct success factor

• And it does not cost a lot!

• Can it be harnessed?

marketingWOM

• You cannot probably harness it but you caninfluence it.

• Traditional WOM marketing strategies arebased on attaining opinion leaders

marketingWOM

Some general rules in WOM marketing• Ask your customers to endorse you• Ethics and good service are paramount• Make satisfied customers meet potential

new customers• Facilitate the conversation of customers• Ask for feedback (good and especially bad)• Make your product interesting• Make your campaign interesting

marketingWOM

The two step flow model and the “expert” and “social” opinion leaders.

Mass media

Opinion leaders

Mega hubs

Expert Hubs

Regular Hubs

Mass audiences

Traditional WOM marketing strategies are based

on attaining opinion leaders

New communication technology has enabled new ways

for customers to converse and exchange views.

Online WOM marketing or viral marketing is word-of-

mouth communication taking place in the digital space.

niche eraWOM

Online tools and viral techniques have made many of

the traditional WOM marketing techniques more

efficient and easier to benchmark and reproduce.

But has WOM techniques really reacted to the Long Tail

phenomena?

niche eraWOM

niche eraWOM

Diffusion of innovations theory and influentials theory

are inherently dominated by the HIT philosophy.

Mass media

Opinion leaders

Mega hubs

Expert Hubs

Regular Hubs

Mass audiences

niche eraWOM

People are facing an ever growing flood of information,

not only from marketing companies but also from their

“friends” (ex. Facebook). Filtering becomes more and

more important.

informationfriends

consumer

WOM PROCESS

Long Tail would imply shifting the focus from the

company to the consumer and from dissemination to

filtering.

New opportunities for content producers, marketers and

technology providers.

niche eraWOM

• Henry Jenkins: ConvergenceCulture

• Empowered consumers actindependently of producers’will - even fan communities

Communities - a double edge sward

Communities - a double edge sward

• Reality TV Series Survivor

– group of people let on a deserted islandand eliminated from the game one byone.

– Recorded in advance. Secrecy is vital.

– An international Spoiler communityorganized itself with the help of Internetand started to systematically diginformation about the show before it wasaired.

Communities - a double edge sward

• Fan Fiction and Star Wars

– Star Wars is one of the most valuablebrands in the entertainment business

– Very tightly controlled

– Fan communities start to write their ownstories and making their own moviesusing the characters from Star Wars.

– What should Lucas Films do?

Communities - a double edge sward

• YouTube

– User commentaries under the videoframe.

– After making a deal with one of the USTV Networks YouTube hid thecommentaries behind a link, in order tohide unfavorable comments.

– User Community protested heavily andthe initial design was restated.

Thanks!

kai.huotari@hiit.fi