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PQ Media just released their Word-of-Mouth Marketing Forecast 2009-2013. It’s also available free to WOMMA members.

Highlights from the report: Spending on U.S. word-of-mouth (WoM) marketing increased 14.2% to $1.54 billion in 2008, as brands recognized the need to get involved in consumer and business conversations and allocate resources to WoM.

Spending increased at a compound annual growth rate (CAGR) of 37.6% from 2003 to 2008. Spending on WoM content and services increased 13.0% to $1.26 billion in 2008, as major marketers integrated WoM into the media mix and shifted to specialized WoM firms that help drive long-term campaigns.

Spending rose at a 37.3% CAGR of 37.3% from 2003 to 2008. Spending on WoM ancillary products increased 19.7% to $286 million in 2008, due to growing demand for return-on-investment (ROI) data and the impact of WoM campaigns on consumer purchasing behavior. Growth can also be attributed to the increasing sophistication of WoM tools that are being used to monitor online and offline conversations. Spending grew at a CAGR of 39.1% from 2003 to 2008.

Total spending on WoM marketing is expected to increase 10.2% to $1.70 billion in 2009 and grow at a CAGR of 14.5% during the 2008-2013 period, reaching $3.04 billion as more brands include WoM in their media mix and ROI metrics improve.

www.engagementdb.com provides case studies on companies‘ use of social tools as well as a database used to analyze the effectiveness of different efforts.  The site is produced by Charlene Li of the Altimeter Group and Wet Paint.  Their new report shows a strong positive effect from social channels.  Or if you prefer the highlights, here’s a write-up at OnlineMediaDaily.com.  One finding that stands out:

As the number of channels increase, overall engagement increases at a faster rate.

Social is one of those tools where more really is better.

Discgear.com just announced some dramatic success with customer reviews — 74% increase in conversions within 5 months.  Congrats to them and to their review system provider, PowerReviews.

But I couldn’t help noticing this quote from Michael Brown, their IT Director: “User-generated comments and reviews are second only to word-of-mouth as a purchase driver for web users.” So, by all means, invest in a customer reviews system.

But don’t forget your word-of-mouth system, too!

Word-of-mouth has a radically greater impact on purchase behavior when it comes from friends than from strangers (like bloggers), according to a Mintel survey of buying behavior, just cited in eMarketer,

eMarketer says: „While bloggers may bring buzz to a product, converting the buzz to sales is another matter.“

“It’s interesting to find that as much time as we spend online, we still prefer a personal recommendation from someone we know and trust,” said Chris Haack of Mintel.

Here’s their data:

Tom Hespos was focussing on ad targetting in this blog post, but he’s accidentally made a powerful case for trusted references.

As much as we might not like to admit it, what we perceive our needs to be is heavily influenced by our friends‘ needs. You might be perfectly happy, thinking all your needs are met, but if your five best friends suddenly purchase new cars, new Kindles, or a new style of clothing, it’s likely that you’ll consider buying these new things yourself. To paraphrase George Carlin, rest his soul, coveting other people’s stuff is what keeps the economy going.

The influence our friends have over our purchasing habits isn’t automatic. Of course, we have to know about our friends‘ purchasing habits. Once we know Fred bought a new Honda Accord, we have to go through a consideration process of our own. Getting to that consideration in the mind of the consumer is the classic challenge for most marketers.

There are lots of reasons why advice from friends is so much more influential than advice from strangers.  Trust is a big one.  The Wall Street Journal today has a piece about the growing sway marketers have over product recommendations online.  „Paid to Pitch: Product Reviews by Bloggers Draw Scrutiny.“  I was particularly struck by the marketer who requires bloggers he hires to use a seal that says „Sponsored Post.  100% Real Opinion.“  It’s so murky.  Even if the overwhelming majority of amateur reviewers have no commercial interest (or hope of one in the future), the fact that some do undermines trust in the rest.  There is always something comforting about knowing that the person you’re getting advice from is putting you first.

Catching up on my reading.  Sorry, this’ll be old news to those who stay current.  Eric Clemons, a professor at Wharton, wrote a piece on TechCrunch a month ago titled „Why Advertising Is Failing on the Internet.“  It stirred up some controversy — 753 comments on TC as of now.  The core of his point is that consumers don’t trust or want advertising, and on the internet there are alternative, more trusted and welcome ways for consumers to get info.

What I just want to point out here is his commentary about what WILL work.  Along with a few other ideas, he writes:

Social search. Social search is a way of tailoring search based on the user’s network of friends.  Rather than searching for any hotel in Chicago, or for any hotel that paid for the keywords “hotel” and “Chicago” I would like to be able to ask for the hotel where my friends stay when they are in Chicago.  This invades no one’s privacy, avoids the annoyance of pushing ads at me when I am not searching for something to buy, and provides more relevant results than paid search usually can deliver.

We agree.

Here’s what Citysearch CEO Jay Herratti told the New York Times last week regarding their recent trial of Facebook Connect:

In the four months the site [Citysearch] has been testing Facebook Connect, 94 percent of reviewers have published their reviews to Facebook, where an average of 40 people see them and 70 percent click back to Citysearch. That has translated into new members: daily registrations on Citysearch have tripled.

If you are an on-line merchant, don’t leave all the Facebook Connect fun to the publishers!  With tools like TurnTo, a Facebook Connect implementation is far easier and quicker than you might imagine.  And results like those from Citysearch show the benefits can be dramatic.

Would you walk into a great looking store if there are only salespeople there but absolutely no other shoppers you can see? Ever seen people peek at others’ shopping carts while waiting in line at the supermarket? Ever seen them reach out and grab a few extra products they hadn’t thought about buying before? Would you feel comfortable parking the only car at the shopping mall’s parking lot?

My father told me that when I’m looking for a good restaurant, I should walk into one that’s full of people. This would be a good indication that the food is fresh and the service attentive. Life experience has taught me to apply this advice more broadly to shopping in general, whether I’m looking to buy food, electronics, apparel, or book travel – take a look and see if there are other buyers around. And if there are – walk in with comfort and trust. I think it’s basic human nature – we take our cues for buying and shopping from other people, real people, that live, work, and shop in our vicinity. Some may call this “the wisdom of crowds”, other would say it’s “keeping up with the Joneses”. Whichever the case, when we’re shopping, we’re drawn a lot more into stores full of people. Empty stores are unappealing. They make us uncomfortable, keep us guarded, can even make us a bit suspicious, and certainly tight-fisted with our wallets.

That’s in the real world. What about online?

Shopping online is a lonely activity. It’s you and your computer. No matter how sleek a retail site may be, you’re there alone. You can’t see your neighbors. You can’t tell if the shopping site had drawn other people from the street. You don’t know if anybody else from town has parked their car outside. As a result, you’re not as comfortable about buying there as you would be if the store were a brick and mortar store, full of real people that warm up the place and that you can see shopping around you. Think about how much money internet retail sites are leaving on the table everyday because their visitors are missing that sense of comfort and trust that comes from seeing other human beings, people from the same subdivision, people from their part of town, shopping around them.

Now imagine that you go shopping online, and at the retail site you’re visiting, you can see people from your own zip code shopping. These are not necessarily people you personally know. Much like in the real world, they could be strangers. But they have a lot in common with you – they live in your area. And now you can see that they shop here too. You might even be able to take a peek and see what they’re buying. What would this do to your level of comfort? How much more appealing would it make this online store? Would this not give you this “warm and fuzzy” feeling that you get when you walk into a store at the local mall and it’s full of buyers ? Would you not find yourself getting curious about additional products you weren’t even considering when you walked in, because you can see some neighbors buying them?

These are exactly the benefits that the TurnTo widget offers online retailers and their shoppers. It brings online these simple and highly intuitive elements of local social shopping that we’ve all been so used to in the real world. The business benefits of the crowded store travel well to the internet shopping site – your visitor is a lot more comfortable coming in, browsing, spending time, engaging with your brand and your products, getting product ideas by looking at other shoppers, proceeding to the cash register, and giving you their credit card to place an order. Parting with your money is a lot easier and seems safer and wiser in a busy store. Chances are your online store is quite busy. Now make this busyness visible.

Last year, ecommerce sites that sell to “grown ups” sometimes told us, “We don’t need a social shopping strategy – our customers don’t use social networks.”  That was last year.  The landscape is changing at an incredible pace, and customer profiles in 2009 are going to look quite different.  Take a look at this article about the growth rate in the over-55 Facebook population.

http://www.bizreport.com/2009/02/is_facebook_going_gray.html

Here’s the TurnTo presentation from the OnMedia conference today.  This talk focuses on the whole idea of „Trusted References“.  The TurnTo part goes from roughly minute 1 to minute 10.  (I’m hoping the conference will provide a version of this without the side-bar.  I’ll upgrade if we get one…)

I just got back from the Social Networking Conference in Miami.  Here’s the presentation I gave, titled „Ecommerce Meets Social Networks: A Different Approach to Driving Online Referrals“.  The usual caveats about slides-without-accompanying-commentary apply.

Peter Kim asked a handful of thought leaders in the social media space to give their predictions for the top trends of ’09.  Here are a couple related to social commerce:

Charlene Li: Shopping Goes Social (also reprinted on her own blog)

After a devastating holiday season, retailers will eagerly seek a way to improve results other than driving demand with deeper discounts. One option they will investigate will be how to insert people and social connections into the buying process, illuminating and influencing for the first time the Black Hole Of Consideration. As they lick their wounds in the first half of 2009, retailers will watch from the sidelines as media companies implement open social technologies like Facebook Connect and the Open Social Platform. But as the holiday season launches early after Labor Day, shoppers will find options to see what friends are recommending, buying and rating integrated into the shopping experience.

Jeremiah Owyang: eCommerce Goes Social

The recession will force revenue results out of social technologies –marketing must prove its worth to actually changing the bottom line.  Although customer reviews are nothing new on popular eCommerce sites like eBay and Amazon, in most cases, consumers use the critiques from people they don’t know.  Now with connective technologies like Facebook Connect, Google FriendConnect, and OpenID, consumers will now be able to see reviews, experiences, and critiques from people they actually know and trust.  As a result, expect to see eCommerce widgets and applications appear in popular social networks, as well as when visiting existing eCommerce sites the ability to login with your Facebook or Google identity.  As an example, next time I’m shopping for a laptop, not only will I see reviews from editors and consumers, I will now know which one of my friends uses an Apple computer, and what they think of it.

A couple recent studies by BIGresearch that look at purchase influence factors across all media – traditional and online – shed further light on the importance of the personal advice network.  As a pair, they paint an interesting picture: person-to-person product recommendations are the #1 influence factor on buyers (at least for a number of product categories), and they are the preferred way for recommenders to deliver their advice.

One study, conducted for the Retail Advertising and Marketing Association,  shows that word-of-mouth is the top influence channel for electronics (44.4%) and apparel purchases (34.3%).  In electronics, product reviews came in second (36.8%) and retail advertising inserts came in third (29.2%).  In apparel, retail advertising inserts came in second (33.3%) and in-store promotions came in third (30.4%).

The other, reprinted in eMarketer, shows that across all age groups, the primary means through which people communicate product recommendations are the traditional ones – face-to-face, email, and phone – with blogs and communities far behind.  What’s significant here is that the leaders are primarily point-to-point channels, not mass communications channels, highlighting that people with advice to offer prefer to deliver it directly to the person who needs it.  (OK, people could be email blasting their product recommendations to their friends, but I suspect the dominant mode here is more targeted.)

The New York Times ran a piece today heralding the imminent arrival of Facebook Connect – significant as an indication of the huge expected impact of the feature.  My guess is that for brands and online merchants planning their social commerce strategy, the anticipation of Facebook Connect will be matched by an equal measure of head-scratching about how to make the best use of it.

Its predecessor, Beacon, had significant flaws.  But for merchants, it also had a particular beauty – clarity of purpose.  It did just one thing (sending „stories“ to their customers‘ Facebook pages so friends could see what those customers bought).  And it provided all the infrastructure needed to do that.  Just pop a bit of code here and there, and you were up and running.

Facebook Connect, on the other hand, is a tool kit which can be used in many possible ways.  In addition to posting stories back to Facebook, it offers the ability for shoppers to bring their Facebook friends with them to the merchant’s site.  Sounds exciting, but what does that really mean?  What features and applications should sites build around that capability?  And where does the technology to take advantage of this potential come from?

My belief is that the killer app for Facebook Connect for online commerce is going to be „trusted reference systems“.  If you sell online, and all-of-a-sudden you can know the friend-network of your shoppers, what is the most powerful use to which you can put that information on your site?  It is: to tell your shoppers what their friends have bought from you, while they are shopping.  Shoppers who see that friends buy from you are going to be more likely to do so, too.  They’ll get ideas from seeing what their friends have purchased, so they’ll buy more.  And they’ll be able to see who among their friends they can turn to for advice if they have questions, so their whole shopping experience will be improved.

We’re on the brink of a new phase in online commerce where brands and merchants of all sizes will be able to put applications driven by social graphs on their sites.  For those who take advantage of this opportunity, the potential to create value for their business is tremendous.  (Not to be coy, at TurnTo, we are excited to be the leading provider of turn-key trusted reference systems that make it a snap for sellers to add these social commerce features to their sites.  If you are wondering what Facebook Connect can mean to your business, we’d like to talk to you; please drop us a line.)

Rubicon Consulting just published a great study about on-line influencers.  But the most striking thing about the study: for all the importance of user-generated online content, personal advice is still by far the most influential factor in purchasing decisions.  Here’s the chart of their data:

In a nutshell, they showed: „Advice from friends is better than advice from strangers.“  For sure, companies should be thinking hard about how to influence the people that generate all that anonymous online content.  But the data shows that the biggest leverage still comes from activating the personal advice network.

The communications agency Universal McCann recently published a report called „When Did We Start Trusting Strangers?“ looking at how much more influential the advice of strangers has become in purchase decisions since the rise of social media.  Brands better not ignore this call to action — like it or not, the phenomenon is real and powerful.  And in many ways it’s a good thing, putting more pressure on brands to produce superior products instead of just superior marketing.

But it’s not entirely a good thing.  To the degree that these anonymous interactions replace authentic, personal ones, they represent lost opportunities.  We end up with better stuff and fewer friends.  When we get advice from strangers on a blog instead of calling our friends, is it because we trust strangers more?  Because we enjoy the experience more?  Or just because it’s so easy?  Hey, there are a lot of strangers in the world – some have already written down their opinions on whatever product you want to know about.

But if it were just as quick and easy to find advice from friends as from strangers, which would you ask?  If you said „friends“, why?  Because you trust friends to give it to you straight?  Because you know them well enough to calibrate their advice?  (e.g. I know Gwen is picky, so if she says it’s good, it’s good.)  Because it gives you a reason to check in with someone you care about?  Even in the McCann study, in response to the question, „How I share opinions of products, brands and services“, the personal forms of communication (e-mail and IM) rank 50% higher (!) than the impersonal ones (blogs, reviews, comments).  (Page 29.)

In the next phase of the web, we’re going to see our real world relationships woven into our on-line experience everywhere we go.  (Charlene Li says social networks will be like air – they’ll just surround you.)  And when that happens, we’ll see the pendulum swing back from stranger-advice towards friend-advice.  And that will be a good thing, too.

We get a lot of questions about whether TurnTo will work before we’ve achieved a „critical mass“ of users.  We built the TurnTo model so massive scale is not a requirement for the system to deliver value to users or to our partner sites.  I thought I’d explain how that works:

1. Sites that use TurnTo suggest to their customers that they join TurnTo.  This message is delivered on the order confirmation page, the confirmation e-mail, or in on-going marketing campaigns.  The pitch is basically: be there for your friends and they’ll be there for you.  The sites may offer incentives, as well.  Not all customers join, but enough do.
2. When these customers join TurnTo, they import their friends‘ e-mail addresses and authorize that their purchases be shared with those friends.  Most likely, many of the imported friends are not yet TurnTo members.  That’s OK – those friends won’t see any of the purchase information that has been shared with them until they join TurnTo.
3. A visitor – someone who is not yet a TurnTo member – comes to the TurnTo partner site.  The TurnTo widget shows a message like „See if friends can advise you about shopping here.“  The visitor clicks, is brought to the TurnTo registration form, and signs up.  TurnTo compares the visitor’s e-mail addresses to those with which TurnTo members are sharing.  Immediately – before she has done any network building of her own – the visitor sees the information that her friends are sharing with her on that site.  Instant gratification.

The power of this model is that each TurnTo partner site can make TurnTo productive without needing a massive TurnTo user network.  Individual partner sites don’t care about the size of the overall TurnTo network, they only care about whether their customers are TurnTo members.  And visitors to those sites don’t care about the size of the overall network either.  They only care if friends who shop on the particular site they are visiting are TurnTo members.

Of course, if you don’t shop at any of the TurnTo partner sites, then TurnTo won’t do anything for you.  But if you do visit a TurnTo partner site and have friends who shop there, there’s a good chance you’ll see these „trusted references“ within a month or two of those sites installing the TurnTo system.