How to Use Word-of-Mouth Marketing for Your Small Business

Catherine Giese

Associate at Fundera
Catherine is a former content marketing associate at Fundera. She writes research-driven stories to help small business owners grow and thrive in their industries.

Digital marketing tactics may have gotten the lion’s share of attention over the past decade, but one of the most valuable and effective marketing strategies actually has its origins offline. Word-of-mouth marketing is one of the oldest tricks in the book, and modern technology has made it easier than ever to get people talking about your brand.

If you’ve heard of referral marketing or the concept of brand loyalty, it’s worth noting that both of these fall under the word-of-mouth marketing umbrella. Word-of-mouth marketing can occur online or offline, and although it can be a bit difficult to measure, it can also be incredibly powerful.

What Is Word-of-Mouth Marketing?

Word-of-mouth marketing occurs when a satisfied customer recommends a product or service to a prospective customer of the business. So, if you’ve ever told a friend about your favorite brand of tea, for example, and suggested they try it out, then word-of-mouth marketing occurred. This means that word-of-mouth marketing is not actually implemented by you, the business, but by your customers.

Because of this, you may be thinking that word-of-mouth marketing is too hard to control and measure, and thus, that it’s not worth it for your business. You’d be right about the first part, but wrong about the second. Although studies differ in the conversion rates they provide, it’s been shown that word of mouth is far more likely to convert customers than other means such as paid advertising.

word-of-mouth marketing

Word-of-Mouth Marketing Statistics

Need some evidence to help you decide if word-of-mouth marketing will work for your business? We’ve scraped the web for the numbers and trends to answer the questions that you might have.

Q: How much more trustworthy is word of mouth versus other marketing tactics?

A: A lot more: 83% of people trust recommendations from people they know. This is opposed to 66% who trust consumer opinions that are posted online, and 66% who trust editorial content.1

Q: Okay, but what do people trust the most?

A: People trust recommendations from people they know the most out of all categories (opinions read online, editorial content, etc.). This holds true across all countries and age groups. Latin America and millennials rank the highest for trust across regions and age groups, respectively.1

Q: How many of the people who receive recommendations actually end up buying?

A: Word of mouth is the primary factor behind 20% to 50% of all purchasing decisions.2

Q: What is the lifetime value of customers sent over by referral?

A: The lifetime value for new customers who were referred by existing customers is 16% higher than non-referrals.3

Q: Do referral pages work at all?

A: They work pretty well: 14.05% of customers who visit a referral page take action, and 68.67% of referred users convert.4

Q: How do people tend to refer their friends and family?

A: Given the choice, 78.1% of people copy and paste referral links to share, which suggests that people prefer 1:1 interactions when deciding whether to refer others.4

Q: How many people actually refer their friends and family?

A: Each engaged customer refers 2.68 customers on average.4

Q: How important is brand loyalty?

A: Pretty important, we’d say. 65% of a company’s business comes from existing customers.5

Q: How many of my customers are talking about my brand?

A: Although your business may have different numbers, on average, 54% of current customers talk about their experience with a brand. About 6% do so negatively. By contrast, 37% of all former customers continue talking about their experience with a brand after they have left, and about half of those about the brand negatively.6

Q: Let’s talk about the time before purchase. How many people actively consult friends and family when deciding to make a purchase?

A: About 50% of people consult friends and family before a purchase. This stands in comparison to 39% who consult company websites, 35% who consult blogs and forums, 13% who read newspapers and magazines, 13% who consider TV ads, 10% who consult social media, and 3% who get their information from radio.1

Q: And how powerful are those recommendations?

A: A recommendation from a close friend is up to 50 times more likely to trigger a purchase than one from an acquaintance.2

Q: Are influencers kind of like “close friends?”

A: Not quite. Influencers do have a high degree of, well, influence over others’ purchasing decisions, but they’re much fewer and farther between. About 8% to 10% of consumers are considered influential, meaning many other people trust them and think they are competent.2

Q: What’s the most powerful form of a word of mouth?

A: Experiential word of mouth, or recommendations that come from someone’s personal experience with a product or service, is the most common and powerful form. It typically accounts for 50% to 80% of word-of-mouth activity in any given product category.2

Why Word-of-Mouth Marketing Is an Important Tactic

Word of mouth is an organic and free form of advertisement. But although it’s free in terms of its price tag, actually making it work will cost you a lot of time and effort. This is because it requires you to actually connect with your customers rather than just paying for ads or otherwise bringing people through your funnel in an impersonal way.

It’s also a highly effective marketing tactic. The majority of people trust recommendations from their friends and family over anything else your business could do to convince them to convert. Not only that, but referred customers are also more likely to have a higher lifetime value than those your business acquires through other means.

word-of-mouth marketing

How Word-of-Mouth Marketing Can Help Your Business

Convinced that word of mouth is worth incorporating into your overall marketing strategy? If so, you might also be aware that word-of-mouth marketing isn’t a strategy you can implement directly, but rather something you must encourage.

In a Forbes article on word-of-mouth marketing, Kimberly Whitler establishes the “three Es” of word-of-mouth marketing. These are “engage,” “equip,” and “empower.” The idea is that if you engage with your customers as people who have thoughts and needs, equip your customers with valuable interactions or unique product offerings, and empower them to speak out on social media or via referral links, you can rest assured that people will get talking.

The three Es, while important to understand, can be a bit abstract. To help you get the ball rolling, here are a few tactics to get started with.

Respond to Customers

When engaging with your customers both on and offline, be as responsive and helpful as you can in all of your interactions. When it comes to being responsive online, this can involve responding to customer reviews and answering customer questions on social media.

If you don’t have too many reviews to sift through, consider thanking positive reviewers for their kind words. If the number of reviews you have is a bit overwhelming and you can’t respond to all of them, then at least consider responding to negative reviews, apologizing for the problem and asking for feedback on how to do better.

Create a Network of Peers

You can also encourage word of mouth via your peers, rather than relying solely on customers. How many times have you taken a recommendation for another service from a professional you love and trust? You can do the same by finding business owners who work in complementary industries, and by referring customers to each other.

Hilary Young runs her own content and branding consultancy at Hilary Young Creative, and says she has yet to spend any money on marketing thanks to this technique. Since she specializes in content and branding, complementary professionals to her business work in industries such as graphic design, video production, and public relations. Think about what other needs your customers have and how you can partner with other business owners who can help them.

Encourage User-Generated Content

This tactic melds together engagement and empowerment in the three Es’ framework. Encouraging your customers to create content related to your brand gets people thinking about your company and how it creates value in their lives. It also empowers your customers to talk about you on social media.

User-generated content often gets shared in two places—on the user’s platform and on your brand’s platform. As a result, you not only show your existing customers that you provide value, but you also win exposure in your individual customers’ networks.

A great example of a brand who has successfully leverage user-generated content to create word of mouth on social media is Glossier. The beauty brand has a couple different ways of encouraging user-generated content.

The first is that they regularly feature their customers’ pictures on the brand’s Instagram account when their customers tag the Glossier account, creating an incentive for individuals to gain visibility. The second way is through experiential marketing. Their flagship showroom in New York City is pure Instagram bait, which creates the aesthetic environment necessary to encourage their customers to snap photos. These two incentives encourage their customers to promote Glossier on their own accounts, allowing the brand to reach each customer’s individual network via word of mouth.

Provide a Superior Customer Experience

For people to talk about your business, you need to be truly superior at meeting your customers’ needs. Are you actively making the best first impressions with prospective customers and building meaningful relationships with them? Each touchpoint should be a place where valuable interactions take place.

Many marketers and prominent business strategists have noted that marketing is everyone’s job. This means that everyone, from your salespeople to your design team and beyond, must be involved in ensuring that each customer is adequately taken care of.

word-of-mouth marketing

Tap Your Community

This doesn’t just mean tapping your local community—it also refers to other niche or interest communities you may be apart of. Brian Harper, owner of BH Garage Doors, served in the Army for 10 years and proudly advertises that his company is veteran-owned and operated. He says that many people in his community come to his business because they want to support veterans, and refer other customers who like to do the same. If you’re veteran, it doesn’t hurt to let people know, and if you’re not, try seeing what other kinds of communities you belong to that you can tap.

If you’re looking to get closer to your local community, then Laura Simis of Coalmarch Productions recommends trying out the Nextdoor app. A lot of people discuss local businesses in the app, making it a great way to see what people are saying about you. By claiming your business, you can make it easier for people in your community to find your business, recommend it, and leave reviews.

Provide Social Proof

Another great way to encourage word-of-mouth marketing is to provide evidence that other people find your products or services valuable. Evidence that serves as social proof can take many forms, from followers and engagement on social media to five-star reviews.

If you’re looking to become an industry thought leader, start by building up your social channels and answering questions on forums such as Quora and Reddit. You can also provide social proof by encouraging your customers to leave reviews on platforms such as Yelp. Finally, consider asking a few loyal customers to provide testimonials that you can include on your site. Once you have built up proof that other people like your business, it’s human nature that others will be more attracted to you.

Ask for Referrals and Give Incentives

You’re busy, and so are your customers. It’s possible that even very satisfied customers will forget to talk about your business to their friends, family, and acquaintances. After a purchase, remind your customers to recommend you.

If you want to further encourage recommendations, consider offering incentives for your customers to refer their friends and family to your business. For example, you could offer 20% on their next purchase for both the person who referred someone and the person who was referred.

Giving discounts may suffice for B2C companies, but if your business is more client-based, consider writing thank you notes or sending a thoughtful gift as thanks to a client who recommended you. Ryder Meehan of Upgrow says his company sends a thank you note and a gift basket to clients who send them referrals as thanks.

Incorporating Word-of-Mouth Marketing Into Your Marketing Strategy

Word-of-mouth marketing is arguably the most powerful marketing tactic there is, but it takes a lot of thought and intention to get it right. You cannot pay for this kind of marketing, instead, you must earn the privilege of being talked about in a positive manner. Try incorporating some of these techniques that will encourage happy customers to recommend you to their friends, and watch you customer loyalty and profits take off.

  1. https://www.nielsen.com/content/dam/nielsenglobal/apac/docs/reports/2015/nielsen-global-trust-in-advertising-report-september-2015.pdf
  2. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/a-new-way-to-measure-word-of-mouth-marketing
  3. https://www.ericstownsendmarketing.com/wp-content/uploads/2010/09/referral_programs1.pdf
  4. https://www.referralsaasquatch.com/infographic-state-of-referral-marketing-statistics/
  5. https://www.fundera.com/resources/brand-loyalty-statistics
  6. https://www.bcg.com/publications/2015/marketing-brand-strategy-what-really-shapes-customer-experience.aspx
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.

Catherine Giese

Associate at Fundera
Catherine is a former content marketing associate at Fundera. She writes research-driven stories to help small business owners grow and thrive in their industries.

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