Published: November 25, 2020
Every day, we are exposed to advertising material for every product and service imaginable. Whether on social media, tv, radio, print and more, billions of dollars are spent on advertising each year, all to influence whether or not we make a purchase.
Also impacting our decision-making process are recommendations or alternatively criticisms, of these same products and services from family and friends.
But how much of an influence can these word of mouth interactions have, and ultimately, how does it impact advertising dollars?
Joining me to discuss this topic is Yogesh Joshi, a professor at the University of Maryland, whose study, “When Consumers Learn, Money Burns: Signaling Quality Via Advertising with Observational Learning and Word of Mouth,” has been recently published in the INFORMS journal Marketing Science.
Typically when one thinks about interaction between advertising and word of mouth, one tends to think of them as substitutes. That is, if my product is getting a lot of word of mouth, then I do not need to spend as much on advertising. Managers often treat word of mouth as free advertising, and when they see more of it happening, they might be tempted to pull back on spending on advertising. What our research shows, is that might not always be the right thing to do.