The role of word-of-mouth and how it can be used to develop a competitive advantage for a destination

Paper prepared by Kiki Kaplanidou, PhD student and Dr. Christine Vogt, Assistant Professor MSU Department of Park, Recreation and Tourism Resources

In this paper you will find:

What is word-of-mouth? What do people talk or buzz about? How many people do we tell? Power of word-of-mouth Opinions of experts and consumers on word-of-mouth activity How to stimulate WOM and make it work for your tourism business WOM and other promotional efforts How to measure WOM Bibliography

This paper is the result of the cooperation of Travel Michigan and MSU Department of Park, Recreation and Tourism Resources

The role of word-of-mouth and how it can be used to develop a competitive advantage for a destination

What is word-of-mouth? Word-of-mouth is a way of communication between people regarding product and service performances. It is considered an unofficial form of communication and there are various expressions as to how people and academics refer to it. Words like buzz, grapevine or customer talking are often used to describe this communication activity people engage in. In tourism, word-of-mouth is among the first three sources of information people use. Table 1 shows some numbers indicative of the importance of word-of-mouth to people planning vacations. Table 2 describes what products consumers usually seek advice for and the differences between males and females.

What do people talk or buzz about? Exciting products (like movies or destinations that offer exciting experiences) Innovative products (like web browsers) Personal experience products (hotels, airlines, vacation) Complex products (in order to reduce risk people talk about products they do not understand like software, medical devices) Expensive products (a very expensive vacation package will make potential buyers ask about what it offers and how good it is since it requires a big investment by the buyer) Observable products (people engage in discussions about what they see in other people, e.g. clothing, expensive cars) Personal activities (like attending a cultural or sporting event, people usually talk about this kind of experiences while socializing with friends and relatives)

Table 1: Friends and relatives as a source of information for travelers State Michigan Year of study 19961998 1998 Summer 2000 Summer 2000 Wisconsin 2000 2001 Source of information Friends and relatives Rank of source 3 Percent who used 15% Type of survey Household survey Michigan Welcome Centers Survey Web survey Qualitative research focus groups Field Survey (various events) Author of study TTRRC*
Seeking advice for Male Female 45% 47% 41% 42% 40% 49% 39% 38% 26% 28%

Table 2: What products and services consumers seek advice for

Friends and relatives Friends and Relatives Friends and Relatives Friend/relative/ colleague Friend/relative/ colleague

2 1 1

44% 71% -

TM** TM

Doctors Where to get legal advice Car mechanic

TM Wisconsin Dept of Tourism Research Ohio Division of Travel and Tourism

Where to eat What movies to see

47%

Research by Maritz Marketing Research reported in American Demographics (July, 1995)

Ohio

2001

22%

N/A

* TTRRC: Travel Tourism Recreation & Resource Center-Michigan State University ** TM: Travel Michigan

How many people do we tell?

American Demographics (1995) reported opinion leaders tend to tell approximately five other people about restaurant and vacation experiences. This number was bigger than that opinion leaders told about TV shows, cars, retail store, clothing, consumer electronics, stocks, mutual funds and CDs. Research results vary as to how many people a person informs about a product. The emotional involvement of the customer is usual a good predictor of how often a person informs others about his positive or negative experience. There is wide industry belief that a dissatisfied customer will tell more people than a satisfied customer. Also the number of people we tell about a product can change overtime. A 1999 survey funded by Priceline.com and conducted by Opinion Research Corporation International of Princeton, New Jersey, shows that on-line shoppers told 12 other people about their experience with buying on-line (Rosen, 2000, p. 41). People share opinions about products and services and they usually inform five to six people when they are satisfied from their experience with the service or product. In the case where they are dissatisfied they can inform up to 11 people (Cafferky, 1996). Johnson-Brown and Reingen (1987) in their research on social ties and WOM found that weak-ties (people that a person does not see very often) are more likely than strong-ties (close friends and relatives) to serve as bridges through which WOM referrals flow across groups . In other words weak ties are more crucial in explaining macro phenomena of interpersonal communication. They also found that the receivers decision making is more influenced by information obtained from strong-ties than weak-ties and that the more homophilous the tie, meaning communication among similar consumers, the more likely it is activated for the flow of referral information (p. 357).

Power of Word-of-Mouth (WOM) Some of the reasons that make wordof-mouth a powerful source of information are the following: WOM is an independent and honest source of information (when the information comes from a friend it is more credible because there is no association of the person with the company or product). WOM is powerful because it provides the inquirer with an indirect experience about the product through the experiences of friends and relatives. For example, imagine that someone wants to visit the city of Frankenmuth in the State of Michigan. Before he/she actually invests time and money into the trip, he/she gathers information from friends or acquaintances that visited the place to get a more realistic view on what to expect from the destination. WOM is tailored to the people that are interested in it. In other words, a person will not join a conversation unless he/ she is interested in the topic of discussion. WOM is a self-generating medium of informal advertising. WOM can start from a single source depending how influential and well networked this source is and spread quickly and widely to others. WOM is not limited by money or other constraints like social, time, family or physical constraints. Internet reduces even more the boundaries of communication between people (e.g. on-line chat rooms).

Opinions of experts and consumers on word-of-mouth activity Comments of consumers and experts underline the importance of WOM activity among travelers. Travel Michigan has performed research on the effectiveness of promotional approaches using focus groups in some cases. One of the studies focused on travel information. This study (2000) revealed that Travelers are most comfortable finding new places to

visit by talking with their friends and relatives about places they have been. They like the security of knowing that someone they know has been to a place and recommends a visit. Younger travelers seem to rely on the recommendations of friends and relatives for a destination to visit. For younger people each vacation or pleasure trip represents a larger part of their disposable income and thus a larger risk. The recommendations of family and friends help to assure younger people that the pleasure travel they spend money on will truly be worth that expenditure. Recommendations from friends or relatives are particularly important to travelers with young children. In another study that Travel Michigan sponsored and involved focus groups, some of the consumers commented on the sources of information they used: Word-of-mouth, newspaper articles, travel shows on

TV are good sources. Word-of-mouth! If someone I know really liked the destination I would try it!.Magazine articles and yes word-of-mouth.Word-of-mouth but we do the research ourselves.
The Director of the Marketing Division in Travel Michigan, Melinda Remer, commented on the word-of-mouth activity:

Word-of-mouth is important because it gives so much credibility to the product , to the experience...it is the best influence that youve got, although at times it can backfire. If a visitor has a bad experience he/she can go back and tell 10 other people about it. People use word-of-mouth to find out about destinations. Even myself when I want to visit a destination I call friends and relatives who previously visited the place to ask for their opinion and recommendations about things to see and do. Over the years word-of-mouth activity has changed. People have become more savvy with their advertising. Obviously the Internet had an amazing impact, there are chat rooms, e-newsletters, e-mails that are cost and time effective.WOM is one key component of a promotional campaign ; you cannot just do word-of-mouth without employing other promotional activities as you cannot do others without word-of-mouth.

How to stimulate WOM and make it work for your tourism business Create a unique product or service that will intrigue your customers attention and potentially make them talk about it with friends, relatives and colleagues. People usually talk about exciting and new products or services. Locate opinion leaders for your product and find a way to talk about your product or service. For example, these people will call repeatedly your business to ask for information or they will visit your business premises on a regular basis to acquire the most recent information about the product or service. These were two examples of how you can track them down. Also, these people are usually the innovators and they are characterized by curiosity, activism and indulgence. These characteristics make them trendsetters regarding products and services. Reingen & Kernan (1986) found that although the number of opinion leaders is relatively small they account for 60% of the referrals paths. They also found that multiple group membership is important in the spreading of referrals. Identify the customers who do the talking for a business and stimulate their interest even further. For example, if a customer sends a letter of praise to a business, action should be taken to show the businesss appreciation for his/her praise. Product or service discounts can be offered, as well as hosting of special events that will have a related product/service theme to stimulate the customers interest even further. Also, thank you letters increase positive impressions about a business. Stimulate knowledge about your service or product. For example, a business can regularly test how familiar the customers are with the business. The trivia can include questions about educational background of employees, business achievements, community services, years of existence or how the business has dealt with problems in the past. Do not forget to reward those who answer all the questions correctly!! Satisfy all inquiries. An e-mail that has not been answered no matter how insignificant its content may create dissatisfied customers who will spread negative WOM. For example, think of the following scenario: a travel agency receives an e-mail from a potential customer who inquires about the working hours of the agency. The e-mail remains unanswered and the potential customer becomes a source of negative information spreading. If the agency satisfied his/her simple inquiry, then in the worst case scenario the outcome would be not to produce negative information and in the best case scenario to spread positive information about the efficiency of the agency in responding to all requests. Quietly and efficiently deal with complaints. Addressing a complaint can turn that person into a supporter who will tell others. Not addressing it means not only risk losing that customer but others they may communicate with. Feed the businesss loyal customer base with more information about the offered products and services through e-mail, electronic newsletters, brochures and special invitations to events. Respond to positive comments as well as complaints to maintain high levels of customer satisfaction. According to a research by Richins (1983) if complaints are encouraged, the retailer has the chance to remedy legitimate complaints and win back a customer who also makes positive reports to others, enhancing good will. Technical Assistant Research Programs (1979, cited in Richins) found that even if the complaint is not settled to the consumers satisfaction, he/she is more likely to repurchase than if no complaint is made. Develop and implement WOM offensive strategy by identifying activities that stimulate positive recommendations (Stokes & Lomax, 2002). For example, make the visitors feel at home in your hotel by providing an area that is cozy and allows the guests to behave as if they were home. More specifically, create a movie living room where the guests could enjoy a movie of their preference and at the same time provide an open self-service bar with refreshments and popcorn. This different and new element will make your customers talk about their experience with their friends. Use the Internet to nurture word-of-mouth by placing phrases like send this page to a friend, You think your friend might be interested in this page? E-mail your friend about it! prominently in the business web page.

WOM and other promotional efforts Word-of-mouth is a great promotional tool, which needs to be combined with other promotional efforts to be more effective. Smith and Vogt (1995) suggest based on the results of their research that heavy spending on advertising during the introduction of a new product creates favorable attitudes towards the brand of the product and reduces the impact of any subsequent negative WOM communication. The results from that study also indicated that negative WOM can be damaging to brand and advertising equity. Consumers, who encountered advertising relatively soon after being exposed to negative WOM, discounted heavily the advertisement and had less favorable emotions and beliefs towards it. Cafferky (1996) discusses the importance of opinion leaders and suggests using print medium to reach them. Opinion leaders are usually hungrier for information and electronic communications will not satisfy them. In addition, Cafferky mentions editorial comments are of more value than advertising. The same author suggests the use of the mass media (print, electronic that are specialized to the interests of the opinion leaders) to simulate WOM when a business cannot target them directly. Advertisements can generate WOM when they are high in conversational and entertainment value. When the advertisement makes the consumer talk about its theme and content then it creates WOM. In a case study article about a small hotel business (Stokes & Lomax, 2002) the owner applied WOM strategies not only to his customers but also to people that brought business to his hotel: the travel agents. He used small presents to show his gratification to travel agents for sending a certain amount of customers to his hotel. This strategy was effective as the travel agents that received the gift send three times more people to the hotel and caused them inform more customers about the hotel. In Frankenmuth, Michigan, one of the two main restaurants in town, Zehnders, used promotions that required guests to sign-up, return and preferably bring other customers with them. Two of the most popular promotions were the Birthday Club, which offered the customers a complimentary meal on their birthday and the Frequent Buyer Program, which offered a coupon worth 10% of the amount a person spent on ten meals. (Harvard Business School case study, A Taste of Frankenmuth, 1999). Also, the same restaurant uses its website to offer discount coupons for customers, who can enjoy their second family style chicken dinner for half-price. This discount motivates the customer to bring another person to the restaurant in order to benefit from the offer, creating additional WOM activity.

How to measure WOM There are various ways to measure WOM. One is to keep track of customer activity. In other words, create a database where repeat and first time customer visits will be recorded. Repeat customers can be surveyed on how many recommendations they made to other people about the business. First time customers can be surveyed on whether someone recommended the business to them. This approach can be implemented more easily in the case of a hotel. A small discount can be offered as a reward for customers who reveal their source of recommendation. In the case of a restaurant, the owners can train employees to record how satisfied or dissatisfied customers are. For example, a business can create a database or an employee diary where the latter will keep track of what all the people he/she served per night said about the service or the environment of the restaurant or other aspects important to the restaurant. In addition, employees should be empowered to fish information out of customers related to WOM. For example, to ask if somebody else recommended this restaurant to them and what was the customers relationship with that individual. This fishing of information can take place in the form of a questionnaire during the customers dinner or oral conversation by the server. To motivate the customers to provide the information a small discount for their meal should be offered to them. After getting all the information, the employees should enter the data in the database and managers should analyze the results. Another similar example is that of the Ritz Carlton Hotels. From automated building space and safety systems to computerized reservation systems, Ritz-Carlton uses advanced technology to full advantage of satisfying customers. For example, each employee is trained to note guest likes and dislikes. These data are entered in a computerized guest history profile that provides information on the preferences of 240,000 repeat Ritz-Carlton guests, resulting in more personalized service. The aim of these and other customer-focused measures is not simply to meet the expectations of guests but to provide them with a "memorable visit." According to surveys conducted for Ritz-Carlton by an independent research firm, 92 to 97 percent of the company's guests leave with that impression (source: http://www.quality.nist.gov/Ritz_Carlton_Hotel_Co.htm). One more way to measure WOM is to survey the businesss customer base. When it comes to choosing a vacation destination, WOM can be measured through surveys that ask questions about information sources and attitudes regarding a destination. Questions like how many people have you told about the destination you visited last time? or What made you tell other people about the last destination you visited? can be incorporated in questionnaires to measure WOM activities. It is also useful to understand what the businesss customer base usually talks about in order to be able to stimulate their interests. In this case, focus groups should be used to understand in depth what people discuss and why during their social time. Questions should be formed in a way that reveals what people talk about when they socialize with friends or when they chat on the Internet or when they have a break at work. Smoldt (1998) suggests that one means of measuring WOM is customer satisfaction benchmarking, which can be done through customer telephone surveys. Questions should revolve around the important factors affecting the business (in this article the focus was on medical services). Customer satisfaction benchmarking can contribute to continuous quality improvement, which in turn influences positive WOM.

To conclude, WOM can be measured by: Creating a database and monitoring the visitation patterns of your operations Training and empowering your employees to acquire information from customers Adding questions to customer surveys that relate to WOM activity Conducting focus groups to understand what their customers usually talk about Benchmarking satisfaction.

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