What the hell is Word-of-Mouth? 🗣️👄

What my master's thesis and the most famous cloud storage company taught me about it

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📝 Words: 998 | 🕰️ Estimated Reading time: about 5 mins

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For my master’s thesis I did an experimental research on word-of-mouth (WOM) and its effect on companies’ ability to attract potential employees.

Specifically, I wanted to understand how three variables - WOM, Employer Brand and Self-Esteem of the person receiving WOM - impacted companies’ organizational attractiveness.

To give you a sense, some of the research questions were:

• Is negative WOM more influential than positive WOM?

• Can a strong employer brand mitigate the impact of a negative WOM?

• Does recipient’s self esteem work differently with positive and negative WOM?

Working on this project was one of the most rewarding experiences of my university years. And I still feel immense pride when new students at my university, advised by my thesis professor, ask to read my thesis years later.

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However, in this newsletter I will write about (a) what WOM is, (b) why we generate it, and (c) my favorite WOM example, leaving the findings of my research for another time.

Deal?
Let’s start!

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🗣️ What is WOM?

In marketing, WOM is defined as:

an interpersonal communication, an exchange of information and opinions, independent of the company's marketing activities, concerning an organization and its products.

So it is a social phenomenon and a company-independent source of information regarding an organization and/or its products and services.

Unlike other commercial sources, such as advertising, WOM is generated by people who have no interest in promoting the product.

And for this reason WOM is one of the most influential sources of information for consumers.

If you speak the marketing language fluently, WOM marketing is earned media, organic and not a true promotional strategy, because it cannot be forced.
People naturally talk about brands because they genuinely want to.

According to Nielsen, in its global Trust in Advertising Study in 2021, 88% of consumers indicated that they trust recommendations from people they know more than any other form of marketing.

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WOM influence is evidence-based in many areas, impacting users’ pre-purchase and post-use perceptions.

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The first person to describe it was William H. Whyte, in a 1954 article titled “The Web of Word of Mouth”.

He describes an interesting phenomenon regarding air conditioners, which had recently been introduced to the U.S. market.

While walking through urban neighborhoods, he observed that air conditioners were distributed in clusters of homes, rather than randomly.

Whyte believed that the ownership of air conditioners reflected patterns of interpersonal communications within the same neighborhoods, with people being influenced in their purchasing decisions by informal interpersonal exchanges that occurred predominantly "across backyard fences", through word-of-mouth precisely.

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The Last Supper - Leonardo, 1495 - 1498

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Why we generate WOM?

Jonah Berger, in an interesting literature review¹, argues that WOM essentially serves five functions:

1. Impression Management

2. Emotion Regulation

3. Information Acquisition

4. Social Bonding

5. Persuading Others

So when we generate WOM, it is either for one of these five motives or a combination of them.

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1. Impression management: People share WOM to influence how others perceive them, to communicate desired aspects of their identity and hide others.

2. Emotion Regulation: Sharing help people regulate their emotions by generating social support, providing an outlet and allowing for "revenge" from a negative consumption experience. Additionally, sharing helps understand the event that triggered the emotion, reduces cognitive dissonance and allows to live again the positive emotion and experience.

3. Information Acquisition: Consumers are often indecisive in their consumption choices, which is why they turn to others for assistance.

4. Social Bonding: WOM allows people to stay in touch with each other. Interpersonal communications act as "social glue" bringing people closer, reducing feelings of loneliness, and thus strengthening social bonds.

5. Persuading Others: People use interpersonal communications to influence others and achieve desired outcomes (e.g. speaking highly of a restaurant to persuade friends to choose that place, or conversely, speaking poorly of it because they prefer to go elsewhere). It works because people trust other people - remember social proof?

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3. How to sell more and influence people 🧠

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Dropbox

Dropbox has used word-of-mouth to attract new users - lots of them

I still remember when one of my high school friends was sharing his Dropbox referral link like crazy. On Facebook, via email, talking about it at school, at the gym, at football practice - everywhere.

He was spreading WOM.

Dropbox offered a 2-side referral program for a great product that rewarded both sides for completing a simple task: registering for Dropbox.

For every referral, he was going to receive 500 MB of free space.

Ok, Dropbox still offers this program today, but my friend was spreading the word back in 2009 - 15 years ago!

How did this work?

Dropbox’s referral program was very easy, and the benefits and rewards were extremely clear: if you wanted more storage space, you simply had to invite your friends to register.

Dropbox’s referral system was inspired by Paypal’s, which rewarded referrals with cash (i.e. what their business was about). Dropbox offered cloud storage, so they decided to reward people with more of it.

Dropbox also included a panel that was accessible anytime by users, so they can see how the invites performed.

The results?

I’m not sure how much additional storage space my friend received, but I believe it was enough. Dropbox, on the other hand, achieved incredible results (taken from a presentation of Drew Houston, Cofounder & CEO):

• September 2008: 100,000 users

• January 2010: 4,000,000 users (+3,900% in 15 months)

So they decided to double down on the referral strategy to “encourage WOM”.

Apparently the strategy worked, because Dropbox had $2.5 billion in revenues in 2023, 700M+ registered users, 18M paying users and is the leader in file sync and share business.

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See you next Sunday 🗓️
Thanks,
Giacomo

1. Berger, J. (2014). Word of Mouth and Interpersonal Communication: A Review and Directions for Future Research. Journal of Consumer Psychology, 24(4), 586–607