An Empirical Study of Word-of-Mouth Generation and Consumption

Abstract

Word-of-mouth (WOM) plays an increasingly important role in shaping consumers' attitudes and buying behaviors. Prior work in marketing has mainly focused on the aggregate impact of WOM on product sales as well as the generation of WOM. Very little attention has been paid to the consumption or usage of WOM. In this paper, utilizing a unique data set that collects information from the automobile category on whether a consumer generates WOM to others and uses WOM for making purchase decisions, we build a discrete-choice model to study consumer WOM generation and WOM consumption decisions simultaneously and empirically answer questions that have not been explored previously. We are particularly interested in studying the key drivers of WOM generation/consumption and the synergy effect between the two WOM-related activities. We apply the proposed model to survey data collected on the automobile category. We find a strong synergy between WOM generation and WOM consumption. Although some consumers view WOM generation and WOM consumption as complementary to each other, others tend to perceive the two activities as competing with each other. We also find that consumer product experience and media exposure are positively correlated with their propensity to generate WOM. However, their effect on WOM consumption is mixed. Our empirical analysis also provides evidence of unobserved heterogeneity in the way consumer WOM activities are related to consumer product experience. Overall, these findings lead to important managerial implications on targeting for effective use of WOM as a marketing tool.