Marketers the world over know that the word-of-mouth recommendations that come from friends and family members wield great influence, but measuring the true impact of that influence is tough. New research published in the American Marketing Association's Journal of Marketing assesses how customer turnover is affected by word of mouth.
Researchers Irit Nitzan and Barak Libai analyzed the behavior of more than a million customers of a cell phone service provider to see how likely they were to defect to another service provider when one or more of the people in their calling network canceled their service. A year's worth of data revealed that approximately one-third of the customers studied saw at least one of their friends leave the service provider. The research reveals that after that friend or friends left, the probability that the remaining customer would also leave rose 80%.
"This article shows that even in well-established industries, churn is a social phenomenon," Nitzan and Libai say.
Consumers who were closer to one another—defined by the volume of communications they used—were more likely to defect than consumers who spoke with the defecting friend less frequently, ostensibly because close friends share more purchase recommendations and opinions with those closest to them than with consumers to whom they speak less frequently, the authors say. The impact of these word-of-mouth opinions was less among consumers considered loyal to the carrier, as defined by how long they'd been customers of the mobile service provider and their usage level. In all instances, the impact of friends' defections to other carriers was felt most acutely shortly after they left and diminished within a few months' time.
The findings may make it easier for marketers in all industries to understand the impact of word-of-mouth on customer turnover. Further details and recommendations can be found in the article "Social Effects on Customer Retention" in the November issue of the AMA's Journal of Marketing.