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The Power of Simple Word of Mouth

Group-buying sites are booming – Groupon in particular, according to Sam Decker, published in ClickZ White Papers.

The Groupon site reached profitability in seven months, and is reportedly in acquisition talks with Google – estimates claim the search engine giant may buy Groupon for a price approaching $6 billion.

It’s easy to see why group-buying promotions like Groupon are popular among consumers, Decker says. Massive discounts (50 percent-plus) are coupled with urgency (one-day deals) and a built-in social component – the coupon only goes into effect after a predetermined number are sold, encouraging buyers to share the deal with their networks to ensure the deal will tip. $130 billion in revenues.

But the promotions on these sites are not profitable for retailers in and of themselves. The 50/50 sales split with Groupon means that, in many cases, retailers take in less than 25 percent of list prices on these sales. The retailer does not get the e-mail addresses of customers who purchased their deal – only Groupon has access to those.

Groupon reports that 95 percent of businesses would self-reportedly try Groupon again; another study puts this number closer to 68 percent. Either way, such popularity is testament to the resurgence in corporate belief in the real value of Word of Mouth – WOM, for short. Facebook, You Tube – endless email, g-mails and cyber interfaces of every kind offer ways to boost your visibility by proving you’re popular with Jane and Joe Sixpack.

Historically, some have held suspicions about WOM tools.

The typical American is exposed to millions of advertising messages in a lifetime, according to Australian digital strategist Matt Granfield. Yet only 14% say they “trust” advertising – about 1/5th the number who trust consumer recommendations.

“(W)hen mass media became popular last century, brands could rely on advertising to broadcast their message at the world and word of mouth didn’t seem as important to some marketers anymore,” Granfield said in a recent online presentation. But WOM always has been, and continues to be critical to a brand’s success, he says, and the emergence of social media marketing only reinforces the argument that organizations need to foster public chatter.

Conventional wisdom says people talk about you for four basic reasons:

  • Because they love you
  • Because they hate you
  • Because they were asked their opinion about you
  • Because their community is talking about you.

And it’s a funny thing about word of mouth: Whether it’s good or bad, you deal with it in pretty much the same way – directly, openly and honestly. Even if you make a horrifically bad attempt to come clean with your public – like, oh, say the way Tiger Woods did a few months back – the effort nets you more brownie points than you’ll get with a bunker mentality. Stone walls are for mansions, not social media sites.

Regardless what tactics result in successful acquisition of customers, marketers like Groupon see little downside in generating WOM in an online, viral world. Businesses offering coupon deals hope users will spread the word about their brand, driving even more visitors to try it. After the initial “deal,” retailers bank on repeat business at full price. Groupon estimates 22 percent of its customers return to pay full price.

So, how does one best solidify such relationships?

  • Ask for contact information, even if it’s just an e-mail address
  • Ask customers to provide feedback – at the point of sale, on your website, or via Yelp and other 21st century mechanisms such as Tweets, Foursquare, or Facebook Places.
  • Use in-store signage to encourage social media mentions.
  • And, of course, three most important gems of wisdom: Follow up. Follow up. Follow up.