The irresistible outbreak of trust - Viral Marketing

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The irresistible outbreak of trust

A Viral Marketing eBrief

by Michael Sarnefors, Wedgewise Ltd (www.wedgewise.com), May, 2004

Viral marketing is replacing traditional marketing because it allows low-cost, rapid, highly targeted, personalized, and therefore extremely effective, communication and propagation of marketing messages to existing and potential customers, by leveraging relationships of trust

· It can be recalled that of the three major marketing approaches, only viral marketing allows highly targeted and personalized communication to existing and potential customers, capitalizing on relationships of trust, but necessitates very satisfied customers

- Mass marketing (also known as spam when the message is transmitted by e-mail) involves communicating in an impersonal fashion with all (or a large number of) potential customers

Mass marketing (sketch, thickness of lines reflects personalization,

and hence effectiveness of the marketing message)

- Direct marketing entails communicating in a somewhat personalized fashion with a fairly targeted subset of potential customers, about whose preferences something is known

Direct marketing (sketch, thickness of lines reflects personalization,

and hence effectiveness of the marketing message)

- Viral marketing harnesses highly targeted and personalized communication with existing customers (because it is much easier to query them about, and note their preferences), who are motivated to recommend the message to family, friends and acquaintances, again through highly targeted and personalized communication (the referrers tailor the message), thus leveraging relationships of trust

Viral marketing (sketch, thickness of lines reflects personalization,

and hence effectiveness of the marketing message)

- It should also be recalled that for it to succeed, viral marketing pre-supposes that existing customers are very satisfied, otherwise they will not take the time or effort to pass on the message

Characteristics of marketing methods, by type

Type	Description	Situation where most useful/effective
Mass	Promote a product/service indiscriminately to all potential customers	No information about potential customer preferences
Direct	Promote a product/service only to potentially profitable customers	Some information about potential customer preferences
Viral	Motivate existing customers to persuade family/friends/acquaintances to undertake a desired action	Very satisfied customers

Source: Websites, as observed in April, 2004

· Viral marketing is flourishing because it is low-cost, simple to implement, rapid, scalable, allows leveraging online communities, and has become a fad

- Consumers bearing part of the cost of propagating a marketing message is generally attractive in a cost-conscious economy

- Low barriers to entry

- The Internet allows low-cost and accelerated transmission/propagation

- Scalability

- Tightness of online communities, among which a recommendation can be transmitted with greater confidence

- Get-rich bandwagon effect, notably since such high-profile successes as Hotmail (acquired by Microsoft in January, 1998 for up to an estimated US$ 400 M) and ICQ (purchased by AOL in June, 1998 for nearly US$ 400 M)

- Fashionable

· Among the three types of viral marketing encountered, success depends on maximizing the pass-along rate from person to person

Characteristics of viral marketing campaigns, by type

Type	Objective	Incentive?	Customer motivation	Key Success Factors
Value	Brand-building	N	Share a quality experience	Seen by largest number, and hence quality of experience and ease of referral
Instrumental	Purchase product/ service	N	Share a quality experience, which requires certain products	Low cost of required product relative to quality experience
Incentive	Purchase product/ service	Y	Qualify for an incentive	Immediateness of incentive

Source: Websites, as observed in April, 2004

· Best practices encountered revolved around an inherently infectious product/service/campaign, leveraging existing/creating demand, offering incentives, positioning the vendor and the process as trustworthy, granting a free trial period, motivating/making it easy for the customer to refer, and back office functions

Best practices in viral marketing campaigns, examples

Best practice	Examples (campaigns/products/firms)
Inherently infectious product/service, or viral marketing campaign
Products/services whose value to existing customers grows when the number of users increases	Hotmail, ICQ, PayPal, Love Monkey, plaxo.com
Use of the product/service incites others to become a user	ICQ, Napster, Kazaa, Gnutella, PayPal, Love Monkey (college dating), Tumbleweed (sensitive document transmission online)
Behaviors of the target community carry the message	Hotmail, ICQ, Motley Fool, Mobliss (wireless content), American Idol II (TV series), Club Photo (photo developer offering free online photo albums)
Products/services that invoke a passion (eg Harley Davidson motorcycles)	Harley Davidson motorcycles
Cool factor (right feel, or perceived as fashionable or trendy, seen from the customer’s perspective)	AmIHotOrNot.com (photo evaluation), Mountain Dew (10 proofs of purchase & $35 for a Motorola pager, target: kids), All Your Base Are Belong to Us (video game), Mahir (Turkish man’s homepage), ishaggedhere.com (sexual adventures blog), Deloitte Consulting (Bullfighter jargon buster)
Fun	BlueMountain.com (online greeting cards), Singapore Airlines (ecard campaign), Passthison.com (online greeting cards), Jockey (men’s underwear, “Make-a-Flake” campaign)
Materialize the product’s message	Scope (consumers can send a customized & animated email "kiss" to their friends, reinforcing the branding message that the mouthwash brings people "Kissably close")
Interactive games that motivate existing users to challenge their friends to play	IBM, Ford, GM, Nike, Burger King, Babel Media, Passthison.com
Stage events that demonstrate the product	Trivial Pursuit, Pictionary
Leverage existing demand, create new demand
Target population focus, especially opinion leaders	DOS, Windows, CNN
Build a large community, with common needs	Napster, Kazaa, Gnutella, Babycenter.com, Spiderman (film), The Matrix (film), Queer as Folk (TV series), Southwest Airlines, Krispy Kreme Doughnuts, Build-A-Bear Workshop, Dallas Mavericks, O'Reilly & Associates, SolutionPeople, IBM
Exploit the strength of weak ties (individuals with many casual social connections have a larger influence on communities)	Tupperware, Amway (para-pharmaceuticals), Avon, Mary Kay Cosmetics
Offer incentives
Chance of winning a prize	Sony Music (Taiwan), ePrize, Fujitsu PC
Offer incentives that existing customers actually want	AllAdvantage.com (pays to track online behavior & serve ads while people are online), Epinions (cash/100 hits), MyPoints.com, Etrade.com, Ebates.com, Mercata.com (“PowerBuy”, price of item goes down the more people buying it simultaneously), More.com (prices on products purchased during charter period will never increase), gazooba.com (users offered incentives to recommend websites to others)
Attractive value proposition in call-to-refer	Tripeze.com (contest giving away two free airline tickets/day), Danier.com (leather retailer, vouchers), ebrick.com (etailer, special deals & discounts), Computer.com (computer-related advice portal)
Vendor/process positioning as generating bona fide referrals
Honesty (recipient of the referral must believe the referrer is providing an honest endorsement)	Hotmail
Trust in the vendor by the customer, built up over time	Epinions, eComplaints, ciao.com
Free trial period
Structure pricing such that usage of the product/service is free in the beginning	Intuit’s Quicken
Incite potential customer to refer, facilitate actual referral
Personalize each message, based on known customer preferences	Amazon
Encourage to refer	Hotmail, ICQ
Compelling call to refer	BlueMountain.com
Ease of referral	Hotmail, ICQ, BlueMountain.com
Back office
Cap incentives to avoid spam-like distribution of your message	AllAdvantage.com
Track and analyze results (notably e-mail pass-along rates), using software that measures viral activity, in order to be able to capitalize/ control success/unwanted side-effects
Contingency plans in case a campaign develops in the wrong direction	AllAdvantage.com

Source: Websites, as observed in April, 2004

· Where available, the most successful viral marketing campaigns exhibited an inherently infectious product/service/campaign, or offered an incentive, or several best practices combined

Results of viral marketing campaigns, main approaches used

Campaign	Results	Main approaches used
AmIHotOrNot	120 M/month page views	Cool factor
Hotmail	75 M users in first year	Products/services whose value to existing customers grows when the number of users increases; Behaviors of the target community carry the message; Honesty; Encourage to refer; Ease of referral
Jockey	17 M page views in first month	Fun
ICQ	12 M registered users in first 22 months	Products/services whose value to existing customers grows when the number of users increases; Use of the product/service incites others to become a user; Behaviors of the target community carry the message; Encourage to refer; Ease of referral
AllAdvantage	2 M active users in first year	Offer incentives that existing customers actually want
Ebrick.com	492 K unique visitors/month in first month, unknown how many before	Attractive value proposition in call-to-refer
Epinions	300 K reviews of 100 K products in first 6 months	Offer incentives that existing customers actually want; Trust in the vendor by the customer, built up over time
Babel Media	200 K unique visitors in first 10 days	Interactive games that motivate existing users to challenge their friends to play
Fujitsu PC	50 K registrations in first 6 weeks	Chance of winning a prize

Source: Websites, as observed in April, 2004

· Potential challenges mostly focused on the lack of control inherent in allowing customers to decide what/to whom/how to pass on

Potential challenges in viral marketing campaigns, and examples

Potential challenge	Examples/counter-examples (campaigns/products/firms)
Heavy-handedness	MCI (mass marketing telephone calls during dinner hours), Hotmail (it was remarked that if Hotmail had appended its promotion as part of the body of the sender’s e-mail message, rather than as a separate note at the bottom, the campaign might very likely have expired before it got off the ground)
Association with unwanted, negative people	Online book reseller with affiliate program, neo-Nazi site signs up
Campaign thought offensive/poorly received can backfire, spreading negative image widely	Puma (images of couple wearing Puma sneakers in sexual position, although some suggest that Puma masterminded for buzz effect)
Brand control (message modified/transmitted to people outside target audience)
Cap incentives to avoid referrers turning the campaign into a business
Campaign morphs into a spam deluge, especially in incentive campaigns, which can damage the marketer’s reputation	Phonefree.com (viral campaign involved getting people to register for the service, then downloading their address books, and contacting everyone in them with the message, "Register for free long distance phone calls with us, and you can talk to so-and-so who just signed up!")
Lack of measurement
Uncharted growth (necessitating, for example, adequate infrastructure)	Hotmail

Source: Websites, as observed in April, 2004

· Publicly-available research indicates that people are naturally extremely viral, because they try things recommended by friends and pass on the message to others, but few viral marketing campaigns actually succeed

- (no source, mentioned January 7, 2000) 64% will try something if it is recommended by a friend

- A Jupiter Media Metrix study (mentioned July 19, 2001), with regard to e-commerce sites, found that

. 45 % of consumers choose e-commerce sites based on word-of-mouth recommendations, yet only 7% of companies track e-mail pass-along rates

. Viral marketing campaigns and efforts to improve customer satisfaction can reduce customer acquisition costs by 27% and increase average order sizes by up to 60%

. Most companies define customer "loyalty" too narrowly, by focusing on how much visitors purchase, and as a result, they overlook a key measure of their customers' behavior, whether they are passing on information about the company, or not

. Valuing loyalty based on purchase size alone could alienate customers whose spending is below the cut-off point, and that could hurt sales and limit the company's ability to use a valuable customer acquisition tool (ie viral influencers)

- (no source, observed May 9, 2002) an estimated 80% of the recipients of a viral marketing message pass it on to at least one other individual

- An Opinion Research Corporation International (ORCI) study (November 8, 2000) showed that when one person has a good online experience, he or she will turn around and tell 12 more people, but if that person has a bad experience, 12 others will also know about it, underscoring the importance of ensuring that users have a good online experience (according to other sources, this rate is significantly higher than offline experience transmission)

- According to Jupiter Communications (no date), 69% of people who receive a website recommendation from a friend pass it along to at least 2-6 friends

- ePrize (observed June 2, 2003) has seen on average a rate of 3.5 referrals per user when tied to the chance of winning a prize, of which about one-third of the referees come back to register

- (no source, seen April 17, 2002) only 10% of all viral marketing campaigns succeed (remedied, according to this source, by e-mailing something humorous or a “fantastic offer”)

· In the future, traditional advertising is expected to be replaced by viral marketing, although the quality of actual campaigns is expected to determine whether viral marketing becomes synonymous with spam, and viral marketing will be optimized by tracking Internet behavior to identify above-average influencers

Future orientations for viral marketing, further research needed

Future orientation	Further research needed
Traditional advertising will soon be replaced by marketing strategies that rely on consumers spreading recommendations by word of mouth	Market sizes, trajectory
Viral recommendation e-mails becoming so common that they become regarded as spam	Threshold (it was suggested that receiving one e-mail/day from a friend recommending something might be ok, but 30/day would be excessive)
(Corollary to the foregoing) quality of experience will become even more important	Qualitative experience measurement, with respect to content, approaches
Use the network effect value of individuals to focus campaigns on opinion leaders, who will influence others more than the average (one suggestion is to use quantitative collaborative filtering (used by amazon.com), which seeks to predict a user's rating of an item as a weighted average of the ratings given by similar users, and then recommend items with high predicted ratings)	Methodology to reliably quantify customers’ network effect value (it has been suggested that one source of information on network effect value is the Internet (chat rooms, discussion forums, and knowledge-sharing websites); it has also been suggested that calculating network effect value is similar to Google’s PageRank algorithm, in which a web page is ranked highly if many highly-ranked pages point to it; similarly, in viral marketing a customer is valued highly if he influences many highly-valued customers)

Source: Websites, as observed in April, 2004

Some links for your own research: