There’s No Free Lunch Conversation: The Effect of Brand Advertising on Word of Mouth
Mitchell J. Lovett, Renana Peres, and Linli Xu, 2017, 17-103
Practitioners have a widely held belief that brand advertising, in addition to directly increasing sales, also boosts word of mouth about the brand, which eventually turns into brand equity and sales. In many cases, large investments in paid advertising are justified by the expectation that they will generate buzz about the brand or the ad. As Kia Motors executive George Haynes said: “Television is like rain and we catch the rain in buckets and re-deploy it to the social channels to make our sales opportunity and brand grow.” Surprisingly, scholarly research has paid little attention to this topic.
Here, Mitchell Lovett, Renana Peres, and Linli Xu evaluate this practitioner wisdom that advertising drives word of mouth. They examine the relationship between monthly Internet display and TV advertising expenditures and the total word of mouth for 538 U.S national brands across 16 categories over 6.5 years. The word of mouth mentions are taken from the Keller Fay TalkTrack dataset and include both online and offline word of mouth. Their analysis controls for seasonality, secular trends, past word of mouth, and news mentions, and, to evaluate potential remaining endogeneity, they conduct an analysis using instrumental variables.
The authors find that the relationship between advertising and word of mouth is significant, but small. The average implied elasticity of word of mouth is 0.016 for TV advertising expenditures and 0.010 for Internet display advertising expenditures. These findings challenge widely held beliefs about the impact of advertising on word of mouth. Comparing the direct and indirect effects of advertising, their results imply that the average indirect elasticity of advertising on sales through word of mouth is 0.004, which is a fraction of the estimated average elasticity on sales of 0.12. There is significant heterogeneity in the estimated relationship across brands and categories. However, even the product categories that have the strongest implied elasticities are only as large as 0.05.
- Although ads are mentioned in brand conversations (e.g., an average of 10% of brand conversations mention TV ads), these conversations do not appear to trigger many incremental conversations.
- Individuals with many (10+) social ties generate approximately 50% more word of mouth than individuals with few ties, but individuals with few ties exhibit a stronger relationship between advertising and word of mouth.
These findings suggest that “there is no free lunch.” Advertisers should not expect a considerable lift in word of mouth without further investments in content, social media campaigns, and other marketing communication mechanisms. These results do not rule out that some campaigns for some brands have much higher elasticities (e.g., particular Super Bowl advertisements, viral marketing campaigns), however, the small average implied elasticity and low heterogeneity across brands and categories suggest that these elasticities might not be obtained without a considerable, focused investment of resources.
Mitchell J. Lovett is Associate Professor of Marketing, Simon Business School, University of Rochester. Renana Peres is Professor of Marketing, School of Business Administration, Hebrew University of Jerusalem. Linli Xu is Assistant Professor of Marketing at the Carlson School of Management, University of Minnesota.
We thank the Keller Fay Group for the use of their data and their groundbreaking efforts to collect, manage, and share the TalkTrack data. We gratefully acknowledge our research assistants at the Hebrew University—Shira Aharoni, Linor Ashton, Aliza Busbib, Haneen Matar, and Hillel Zehavi—and at the University of Rochester—Amanda Coffey, Ram Harish Gutta, and Catherine Zeng. We thank Daria Dzyabura, Sarah Gelper, and Barak Libai for their helpful comments. We thank participants of our Marketing Science 2015 and INFORMS Annual Meeting 2015 sessions.
This study was supported by the Marketing Science Institute, Kmart International Center for Marketing and Retailing at the Hebrew University of Jerusalem, the Israel Science Foundation, and the Carlson School of Management Dean’s Small Grant.
The Role of Paid, Earned, and Owned Media in Building Entertainment Brands: Reminding, Informing, and Enhancing Enjoyment
Mitchell J. Lovett and Richard Staelin (2015) [Report]
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Renana Peres, Ron Shachar, and Mitchell J. Lovett (2011) [Report]
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