Buzfactor » Research

Majority of businesses get more than half their customers from word of mouth

Ron Butman — Wed, 05 May 2010 18:51:44 +0000

Recognizing the impact recommendations have on their businesses, 92% of the companies we surveyed said customer word of mouth was very important to their businesses’ success. Our latest survey of over 200 retail and restaurant owners and managers helps explain why. Almost two-thirds of these businesses said word of mouth was responsible for generating over half their new customers and, among smaller businesses, the impact was even more pronounced with 75% acquiring the majority of their customers through word of mouth.

In fact, when compared to other forms of marketing, 70% of businesses said word of mouth had the most impact on the success of their business (3 times more than online and email marketing and 10 times more than print).

However, 40% of these companies do not currently allocate ANY of their marketing budget to word of mouth and, of those that do, the vast majority (71%) dedicate less than 10% of their marketing budget on word of mouth. Interestingly, less than 10% of companies said budgetary concerns were the primary reason for the lack of investment in word of mouth marketing initiatives.

Businesses clearly understand the impact word of mouth has on their company’s success, however, this has yet to translate into increased marketing expenditures on programs designed to generate positive word of mouth for their business. We’ll be exploring the reasons why businesses are not making a greater investment in word of mouth marketing in an upcoming post.

How effective is advertising compared to reviews or recommendations?

Ron Butman — Fri, 23 Apr 2010 14:26:08 +0000

A recent Buzfactor survey conducted by Vizu asked 300 consumers, “What factors most influence your decision to try a business for the first time?”, and found only 4.5% of consumers said it was advertising. And while online reviews are important, a business’s location or the availability of a coupon or discount both have greater influence. However, none of these comes close to the impact recommendations have on where we shop and dine or what local service providers we select.

While websites offering online reviews attract a lot of attention, it’s important to note that only 19% of consumers say they often or very often read online reviews, and of these 24.4% say reviews strongly influence their ultimate purchase decision. So, the reality is that online reviews actual influence less than 5% (19% times 24.4%) of consumers. In comparison, 74.1% of consumers say recommendations influence their decisions, and, most importantly for businesses, consumers say they act on these recommendations 64% of the time which means recommendations from trusted relationships have potentially 10 times ((74.1% x 64%)/(19% x 24.4%)) more impact than online reviews on where we shop and dine and what we buy.

Word of mouth levels the playing field

Ron Butman — Sun, 28 Mar 2010 13:48:26 +0000

A recent survey (n=315, +- 6% at 95% confidence level) conducted by Buzfactor found that a recommendation has 15 times more influence on where a person shops and dines than advertising. When asked, “How likely are you to try a restaurant based on a friends recommendation?”, only 3% responded ‘not likely’ while 71.2% said they ‘would likely or very likely’ try the restaurant.

Interestingly, we found that customers recommend their favorite local businesses as many as 27 times per year and, with recommendations likely being acted upon 71.2% of the time, each customer evangelist a business has potentially generates 19 new customers for their business. Perhaps most important, when asked, “Are the businesses you recommend most often national chains or local businesses?”, 86% of consumers said the businesses they most often recommend are local. With 6 of every 7 recommendations going to a local business, positive word-of-mouth represents a very effective way for local businesses to compete against the much larger advertising and marketing budgets of national chains, thus levelling the playing field.

How do businesses attract new customers?

Ron Butman — Fri, 19 Feb 2010 15:32:25 +0000

The Borrell Associates report, “Say Goodbye to Yellow Pages,” projected a $5 billion decline in print directory advertising in the next 5 years. Our latest survey of retail and restaurant owners certainly doesn’t do anything to dissuade that opinion. When asked, “What has the biggest impact on your businesses ability to attract new customers?”, only 1% of the retail and restaurant owners and managers we surveyed said it was the YP.

Although word of mouth is far and away the most important factor across all businesses, digging a little deeper into the data, it is even more important among small businesses with 90% saying it most impacts customer acquisition. Interestingly, the results seem to indicate that larger businesses have a greater reliance on discounts and coupons while medium size companies rely more on traditional advertising - but across all segments, one thing is clear, businesses recognize positive word of mouth is critical to attracting new customers.