The multiple roles of interpersonal communication in new product growth

Abstract

Interpersonal Communication (IPC), which includes word of mouth, plays an important role in the adoption of new products. Despite the extensive study of the role of IPC at the category level, its role at the brand level has not received its due attention. Using quarterly data on brand-level sales and marketing variables in the SUV category over 10 years, we show that IPC among previous adopters of a brand directly influences the sales of not only the brand itself but also the product category as a whole, which, in turn, indirectly influences brand sales. Additionally, we show that category-level IPC is distinct and separate from brand-level effects. Based on a detailed model-based accounting of IPC effects, we separate the direct effect of brand-level IPC on the sales of a brand from its indirect effect through product category sales, while allowing for category-level IPC and the effects of marketing variables. We demonstrate the various effects of IPC using a numerical experiment.