ADV vs WOM: Models for marketers

Word of mouth, or viva voce, is the passing of information from person to person by oral communication, which could be as simple as telling someone the time of day. Interpersonal influence and word-of-mouth (WOM) are ranked as the most important information source when a consumer is making a purchase decision. These influences are very important, especially in industries whose intangible products are difficult to evaluate prior to their consumption. Furthermore, as WOM becomes digital in the 21st century, the large-scale, anonymous nature of the Web induces new ways of capturing, analyzing, interpreting, and managing the influence that one consumer may have on another.

Let's now assume that we are managers who wish to understand the possible effectiveness of traditional advertising (ADV) vs WOM for promoting a product or service targeting a specific target segment.By comparing ADV and WOM we can better understand the relative effect of these two methods as well as their effectiveness, which is usually higher for WOM, at least in the short term. For ADV effectiveness, a more intense advertising effort is most of the times needed to reach the same level of informed people than for WOM. WOM is considered to be growing in importance due to the increase in digital social networking. This digital version of WOM is considered to provide a wealth of new possibilities to reach market segments that would have been otherwise hard to access.

ADV

Most of the models used to explain the effects of ADV campaigns have attempted to provide analytical mathematical expressions for the phenomenon (Bass, 2007). The intensity and duration of the campaign memory effects and number of broadcasted messages are considered as parameters. ADV can be described as follows: a message is broadcast to a target population of individuals. The targets receive the message and form an opinion: they can either accept the information content or ignore it. A number of models have been proposed to explain or simulate the process of opinion formation in a group of individuals. Most of these have been devised by using simplified versions of well known physical models used to describe magnetic properties in a material. The analogy is due to the similarity of the situations: a magnetic material can be seen, in a rough approximation, as an ensemble of elementary magnets, each one having one of the two possible magnetizations, also called spins: positive or negative. The number and the distribution of the spins is influenced by the temperature T of the material and can be influenced by the strength of an external magnetic field H (Feynman, 1963).

Among the many possible models the ‘Magnetic Eden Model’ (MEM) is a leader, originally proposed by Eden,1961. Lets assume that a certain number N of elements in a material can be magnetized by assuming a spin ±1. A randomly chosen element starts the process. At each point in time all the neighbors (elements directly connected to a magnetized one) can be magnetized. The global energy E of a configuration of spins is given by:

where Si = ±1 indicates the orientation of the spin for the magnetized element,  J > 0 is a coupling constant (representing the strength of the interaction between neighbors), H >0 is the external magnetic field. 

The probability for a new spin to be added to the set of  magnetized elements is actually proportional to exp(−DE/T), where DE is the energy change involved and T is the absolute temperature of the material. During each step, all perimeter elements are considered and the probabilities of adding a new spin (either up or down) to each site must be evaluated. This can done by employing a Monte Carlo simulation method: all probabilities are first computed and normalized then the new element and the orientation of the new spin determined. The process ends when all the elements of the material have been magnetized. A characteristic of this model is that once a spin is set, it is ‘frozen’ and cannot change.

Applying this model to an advertising process, it is relatively easy to interpret the whole process as a single campaign -at the end a certain number of target individuals will have ‘absorbed’ the message- the magnetic field H is a measure of the intensity of the campaign, and the temperature T is a measure of the social cohesion of the target group (or responsiveness to advertising messages), a spin S = +1 means an individual has accepted the advertising message, S = -1 means that the message was ignored (or refused). Once the campaign is ended, the opinions of the target population are set and we may assume that they remain stable until the next campaign.

WOM

WOM resembles to an epidemiological infection process.More specifically, a population of actors is susceptible to an ‘advertising infection’. 

During the unfolding of the process, a number of actors become infected while some recover and become immune by forgetting the information received.  The mathematical models describing an epidemiological infection process are well known (Bailey, 1975). WOM was studied by using an epidemiological diffusion model. This was built by considering the infection cycle in an individual(actor). The actor is first considered susceptible (S), i.e. able and ready to receive a piece of information. Then, if reached by a message it becomes ‘infected’ (I) and is considered as such for a certain period of time. Finally, the individual can recover (R) by forgetting what he received or even be considered as (D) or "dead" as regards obedience to the advertising message.

The mathematical treatment is well known and consists of a system of differential equations that can be solved and produce curves describing the results of the infection. These are mostly s-shaped curves belonging to the family of logistic curves. Traditionally a perfect mixing is assumed: all individuals are equally able to infect all others, the contacts between them are ignored or,better, considered as having a random distribution. When dealing with WOM, however, the diffusion process develops by using the relationships among the social network formed by the individuals as infection channels.

Conclusion

A Nielsen Online Global Consumers Research three years ago found out that:

1. 14% ONLY of consumers trust ads 
2. 56% of consumers avoid buying products from companies who advertise too much
3. 65% of consumers feel they are constantly bombarded with too much advertising
4. 78% of consumers trust recommendations from other consumers

That means, traditional advertising is almost becoming an antiquated way of marketing. But don’t despair; social media marketing is here to help make some distinctions. We are in the 21st century and marketing is evolving with relative flexibility.

"The only thing we know about the future is that it will be different."
Peter Drucker 

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Merry Christmas - Marketing, psychology and the world

Santa Claus, Christmas carols, gifts, endless queues at the malls and the local post offices, house decorations and more human externalities! Christmas is here! Hohoho!! But, what does Christmas mean for us? Why "Merry Christmas"? Does Santa really exist? How could Christmas decoration both in houses and in retail stores affect our psychology? Marketers and psychologists are actually curious human beings that have studied almost every aspect of human and consumer behavior, including Christmas psychology!

Santa Claus really exists?

Santa Claus, also known as Saint Nicholas, Father Christmas or simply "Santa", is a mythical figure with legendary, historical and folkloric origins who, in many Western cultures, is said to bring gifts to the homes of the good children on December 24, the night before Christmas. Images of Santa Claus were further popularized through Haddon Sundblom’s depiction of him for The Coca-Cola Company’s Christmas advertising in the 1930s. The popularity of the image spawned urban legends that Santa Claus was invented by The Coca-Cola Company or that Santa wears red and white because they are the colors used to promote the Coca-Cola brand. Historically, Coca-Cola was not the first soft drink company to utilize the modern image of Santa Claus in its advertising: White Rock Beverages had already used a red and white Santa to sell mineral water in 1915 and then in advertisements for its ginger ale in 1923.

Kids believe in Santa Claus as a function of age. Kids are also more likely to believe if their parents encourage them to do so [Anderson & Prentice, 1994]. But it’s not clear that these beliefs are a sign of greater gullibility or even a greater interest in fantasy.

Actually, researchers found that a belief in Santa was unrelated to other measures of a child's interest in fantasy [Prentice, 1978]. And a recent series of experiments conducted at Harvard found that kids make important distinctions between beliefs in folkloric, fantasy characters and beliefs in other unseen, but scientifically-established, entities. Kids who professed to believe in Santa were nonetheless less certain about it than they were about the existence of oxygen or germs. Another set of experiments revealed that 4-year old kids don't invoke magical explanations for things that happen in the real world-not unless those things otherwise seem impossible [Rosengren & Hickling, 1994].

What happens when kids finally penetrate the veil and reject our fantasies? We might feel a little awkward or wistful. But the kids don’t appear to be heartbroken. When researchers questioned children who had stopped believing in Santa Claus, a milestone they reached around the age of 7, kids reported feeling pleased.

They had figured it out. They were enlightened now.

According to Anderson , it was THE PARENTS, NOT THE KIDS, who reported feeling a bit sad..

Why Merry Christmas?

Tim Kasser, an American psychologist, known for his work on materialism & Kennon Sheldon, professor of Psychological Sciences, University of Missouri, noticed 10 years ago that "More happiness was reported when family and religious experiences were especially salient, and lower well-being occurred when spending money and receiving gifts predominated. Engaging in environmentally conscious consumption practices also predicted a happier holiday, as did being older and male. In sum, the materialistic aspects of modern Christmas celebrations may undermine well-being, while family and spiritual activities may help people to feel more satisfied". Thus consumerism is not always the answer.

Christmas decoration

Werner & Brown [Journal of Environmental Psychology, 1989] suggested that most people like decorating their house for Christmas. One possible reason for this behavior could be the desire to communicate friendliness and cohesiveness with neighbors. Stimulus homes had been preselected to represent the four cells of a two by two factorial design crossing the presence/absence of Christmas decorations with the resident’s self-rated social contact with neighbors (low/high). As expected, a main effect for the decorated factor indicated that raters used Christmas decorations as a cue that the residents were friendly and cohesive. Decoration interacted with sociability in a complex but interpretable way. 

In the absence of Christmas decorations, raters accurately distinguished between the homes of sociable and nonsocial residents; in open ended comments, they attributed their impressions to the relatively more ‘open’ and ‘lived in’ look of the sociable residents’ homes. When Christmas decorations were present, raters actually attributed greater sociability to the nonsocial residents, citing a more open appearance as the basis for their judgments. The results support the idea that residents can use their home’s exterior to communicate attachment and possibly to integrate themselves into a neighborhood’s social activities.

As regards retail stores and their Christmas decoration, the following video, that explores current neuromarketing methods (measuring stimuli and emotions to retail stores Christmas decoration), might shed light on unconscious consumer decision-making processes:

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