Word of Mouth Mechanisms

Summary

Word of mouth (WOM) is the influence an individual receives from others that affects purchasing decisions. All three papers model WOM as a critical market force: Karakaya models it as a utility component with positive/negative valence; Ben Said models it through the imitation process with spatial perception fields; Bonabeau shows it drives network-dependent adoption dynamics. McKinsey estimates two thirds of the US economy is driven by WOM effects (Dye 2000).

Overview

WOM represents consumer-to-consumer (C2C) information transfer about products and brands. Unlike advertising (firm-to-consumer), WOM is organic, bidirectional, and carries higher credibility because it comes from peers. The challenge for companies is that they cannot fully control WOM — it can be positive or negative, and negative WOM from dissatisfied consumers can undermine marketing efforts.

Main Content

WOM in the Karakaya Model

In Karakaya et al. (2011), WOM enters the consumer utility function as the third component:

$$U_{i3}=WO{M}_i\cdot S_i\cdot C_{WOM}$$

where $WO{M}_i$ is the total WOM received by consumer $i$, $S_i$ is their social sensitivity, and $C_{WOM}$ is a global constant.

WOM Generation Rules

1. Only purchasers generate WOM: A consumer must have purchased the product to create a WOM effect
2. WOM valence depends on satisfaction: The direction and level of WOM disseminated to others depends on the first utility component ($U_{i1}$, quality satisfaction)
3. Negative WOM is possible: Even after purchasing, a dissatisfied consumer can disseminate negative WOM, hampering other consumers’ buying stimuli
4. Opinion leader amplification: If the WOM source is an opinion leader, the influence is 3x that of a normal consumer

WOM Propagation

WOM spreads through the social network formed by preference similarity (see Social Network Formation in Consumer Markets). Consumers connected to each other through similar preferences can influence each other’s purchase decisions.

WOM in the CUBES Model

In Ben Said et al. (2002), WOM operates through the imitation process rather than a direct utility component:

• Agents propagate information through a “mouth-to-ear” mechanism
• Each agent has a perception field limiting communication radius
• Communication width depends on innovativeness BA and socio-demographic profile
• Information intensity follows a spatial gradient — decreasing with distance

See Imitation and Conditioning Processes for the full mechanism.

WOM in the Bonabeau Model

In Bonabeau (2002), WOM is implicit in the adoption model:

• Each agent observes the fraction of adopters in their local neighborhood (${\hat{\rho }}_k=n_k/n$)
• This local information drives adoption decisions through the value function $V({\hat{\rho }}_k)$
• The key insight is that local vs. global information creates fundamentally different dynamics (see ABM vs Equation-Based Modeling)

Positive vs. Negative WOM

Negative WOM

Karakaya et al. (2011) explicitly model negative WOM: “even though the consumer purchased the product, he can disseminate negative WOM and hamper other consumers’ buying stimuli.” This is critical because:

• A price reduction that attracts price-sensitive but quality-indifferent consumers can generate negative WOM that offsets the sales gains
• Companies cannot simply maximize WOM volume — they must ensure WOM quality by maintaining product quality
• Negative WOM from unsatisfied consumers can be created “by unsuccessful WOM strategy as it happened to McDonalds” (Wasserman 2006)

Key Empirical Claims

• Over 85% of top 1000 firms use WOM tactics (JWT Worldwide, via Wasserman 2006)
• Two thirds of the US economy is driven by WOM effects (McKinsey, via Dye 2000)
• High levels of positive WOM “scientifically proven” to derive business growth (Kirby & Marsden 2006)

Connections

• WOM utility component is defined in Consumer Utility Function Components
• WOM spreads through social networks
• Opinion Leaders and Social Influence amplify WOM effects
• WOM is the mechanism behind lock-in and diffusion dynamics
• In CUBES, WOM operates through Imitation and Conditioning Processes

See Also

• Opinion Leaders and Social Influence — agents who amplify WOM
• Consumer Utility Function Components — how WOM enters utility
• Social Network Formation in Consumer Markets — the network WOM travels through
• ABM in Marketing Strategy — strategic implications of WOM