Advertising is the price you pay when customers don't talk about your business.

Billions of word-of-mouth conversations happen every day but less than 10% occur online and only 1% (see “Word of mouth goes far beyond social media“) are currently exchanged via social media such as blogs and social networks. The nexus of real-time search and social networking is about to change things and, as a result, we are going to need new ways of storing, searching, and sharing word of mouth as it is increasingly captured and exchanged in the form of online recommendations and reviews. As Greg Sterling points out in a recent post, “the ability to efficiently ask many people for advice or a local business referral at once online is new.  Reviews were step one; the combination of quasi-real time answers and social networks is an evolution of that phenomenon.”

The search interface today is simple, powerful and effective, however, the “one size fits all” approach is beginning to show its limitations. For example, modifiers such as “best” are often included in search queries, however, depending on the situation, “best” has many different meanings.  Using restaurants as just one example, the search for the “best” choice is simultaneously influenced by many factors including time of day (lunch or dinner), occasion (business or social), group dynamics, or even weather (outdoor seating hardly works in Boston in January).  And while search engines have made great progress toward localizing information, it’s important to remember localization is not personalization. This is where our individual social networks will come into play.  Moving forward, I believe our personal network of relationships will help create new, more meaningful ways to organize and filter content and provide the context that search lacks today.

Despite billions of dollars being spent on advertising, direct mail, promotions, and countless other marketing techniques, 78 percent of Americans say word-of-mouth recommendations — especially from family and friends — most influences where they shop and dine.

Recognizing the impact word-of-mouth has on their business, more than 90% of business owners feel customer recommendations are more effective than paid advertising. In fact, almost half of small businesses rely exclusively on word-of-mouth as their only form of marketing.

But businesses face a great challenge in leveraging word-of-mouth into measurable results. That’s why Buzfactor is developing new technologies that let businesses create word-of-mouth marketing campaigns, track their effectiveness, and measure the impact on sales right down to the customer and transaction level.  In effect, we are creating social graphs that map businesses directly to their best customers.

Over the past several months, we’ve surveyed almost 5,000 consumers in 26 major markets to learn more about how word-of-mouth affects consumer decisions. Stay tuned as we’re going through all the data now and will be posting more results soon.