Study: Companies Missing Out on Viral Marketing Benefits

Christopher Saunders

Updated · Jul 20, 2001

E-commerce sites are failing to take advantage of a critical channel for their online marketing efforts — word-of-mouth, according to a report from research firm Jupiter Media Metrix.

According to the study, 45 percent of consumers choose e-commerce sites based on word-of-mouth recommendations, yet only seven percent of companies track e-mail pass-along rates.

That’s not good news, since pass-along rate is one of the few quantifiable ways to analyze viral marketing effectiveness. And if New York-based Jupiter’s right, then e-commerce sites are neglecting a lucrative opportunity to optimize brand messaging through an important communications channel.

And that’s not all they’re missing. The company’s findings also suggested that viral marketing campaigns and efforts to improve customer satisfaction — that is, CRM initiatives — can reduce customer acquisition costs by 27 percent and increase average order sizes by up to 60 percent.

Indeed, the two efforts are reciprocal: keeping customers happy and loyal also increases a company’s potential for word-of-mouth promotion.

But Jupiter said its research finds that most companies define customer “loyalty” too narrowly — simply by focusing on how much visitors purchase. As a result, the companies overlook a key measure of their customers’ behavior — whether they’re passing on information about the company.

“Most companies are not tracking their customers’ behavior adequately enough to understand customer loyalty,” said Jupiter analyst David Daniels. “Businesses need to identify what influences their customers’ purchasing decisions, and they should start by building a broader view of consumer behavior.”

According to a recent Jupiter survey of 31 executives, 63 percent said their companies define loyal customer segments by spending habits and order values, while just 13 percent said they look at customer satisfaction ratings to determine if they’re loyal.

As a result, valuing loyalty based on purchase size alone could alienate customers whose spending is below the cut-off point. As a result, that could hurt sales and limit the company’s ability to use a valuable customer acquisition tool.

To avoid missing out, companies need to invest in better procedures to track and analyze consumer behavior beyond spending, Daniels said.

“To improve their understanding of customer loyalty, companies must implement tools that allow them to identify ‘viral influencers’ and build a consolidated customer view,” he said. “Improved e-mail tracking capabilities and click-stream analysis tools are creating greater opportunities for companies to better learn their customers’ behaviors.”

Reprinted from Internet Advertising Report

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