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Advertising - is it better than Word of Mouth? PDF Print E-mail

The Word-Of-Mouth vs Advertising debate is an old chestnut.  

Do you get all your new business through advertising?  Or alternatively, is your business exclusively a referral-based business?

Word-of-mouth is an important part of any business’s ‘Referral Generated’ marketing channel.  Always consider how you can be asking for referrals!  Strategies like referral programs can be implemented to proactively increase the word-of-mouth leads entering the business’s sales pipeline.  

Leverage is high with word-of-mouth in that other people, usually customers, are doing much of the marketing work for you (and often sales work too!).  Word-of-mouth leads normally convert more readily than advertising-sourced leads.  Costs will normally be low.  However, you market reach is limited by the size of your customer list.

Advertising and the various mediums it covers, fall into the ‘Someone Else’s Generated’ marketing channel for strategies that access the distribution powers of others.  The success of metropolitan newspaper advertising for example relies largely on the circulation base of News Corporation and Fairfax titles.
 
Advertising is a lower-leveraged strategy in that leads do not convert as readily.  Direct costs are generally higher, however, you may find the average direct cost of leads generated is reasonably low.   

  Word-Of Mouth  Advertising
MarketNAV Strategy 2. Referral Generated 6. Someone Else has Generated
Example strategy

Passive – Asking customers to refer their friend/colleagues

Active - Referral gift offer for referrals made 

A campaign with one or more of - search engine link; billboard; ad in a magazine, newspaper, radio or TV/cable
Conversion Rate Normally High Generally much Lower than Word of Mouth
Cost Normally Low Generally much Higher than Word of Mouth
Market Coverage Limited to contacts of customer database Generally wide – based on the media’s audience Generally wide – based on the media’s audience
 Management Similar levels of staff training required to communicate offer being made and the process for the tracking results. Similar levels of staff training required to communicate offer being made and the process for the tracking results.

 

Even if your business does better in one or the other, the best rule to follow is to ensure at least 1 Referral Generated strategy, and 1 Someone Else’s Generated strategy is present in at least 8 strategies running in any given month.

KEY TO–DO’s
  • Review your Advertising to ensure consistency with your Visual Strategy. 
  • Even if Advertising is a big part of your profile – implement a referral strategy as well.
  • Know which channel is achieving what in terms of the key drivers for sales – leads, conversion rate, average value, and direct costs.

*A MarketNAV Channel is one of a ‘6 + 8’ structured list, which is used to categorise marketing, leads generated and sales made.  A MarketNAV Profile is a matrix of leads, sales, and direct expenditure metrics by MarketNAV Channel.

Users of BusinessNAV’s MarketNAV management process are able to use the ‘average value’ of their sales and ‘conversion rates’ to forward-plan marketing activities to achieve their sales targets.  This provides an accountability mechanism for head office sales and marketing teams and outlet managers.