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Business and Manage

In:

Submitted By fazalqadir
Words 10678
Pages 43
Michael Trusov, Randolph E. Bucklin, & Koen Pauwels

Effects of Word-of-Mouth Versus
Traditional Marketing: Findings from an Internet Social Networking Site
The authors study the effect of word-of-mouth (WOM) marketing on member growth at an Internet social networking site and compare it with traditional marketing vehicles. Because social network sites record the electronic invitations from existing members, outbound WOM can be precisely tracked. Along with traditional marketing, WOM can then be linked to the number of new members subsequently joining the site (sign-ups). Because of the endogeneity among WOM, new sign-ups, and traditional marketing activity, the authors employ a vector autoregression (VAR) modeling approach. Estimates from the VAR model show that WOM referrals have substantially longer carryover effects than traditional marketing actions and produce substantially higher response elasticities. Based on revenue from advertising impressions served to a new member, the monetary value of a WOM referral can be calculated; this yields an upper-bound estimate for the financial incentives the firm might offer to stimulate WOM.

Keywords: word-of-mouth marketing, Internet, social networks, vector autoregression

Michael Trusov is Assistant Professor of Marketing, Robert H. Smith
School of Business, University of Maryland (e-mail: mtrusov@rhsmith. umd.edu). Randolph E. Bucklin is Peter W. Mullin Professor of Marketing,
Anderson School of Management, University of California, Los Angeles
(e-mail: rbucklin@anderson.ucla.edu). Koen Pauwels is an associate professor, Ozyegin University, Istanbul, and Associate Professor of Business
Administration, Tuck School of Business, Dartmouth College (e-mail: koen.pauwels@ozyegin.edu.tr and koen.h.pauwels@dartmouth.edu). The authors thank the three anonymous JM reviewers and participants of the
2006

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