Online vs Offline Word of Mouth – What drives consumer purchase decisions?

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Table of Contents

1. Key Findings
2. Introduction
3. Offline word of mouth has greater influence on purchase decisions
4. Influence is a function of trust
5. Offline word of mouth is trusted across demographic segments
6. Measuring offline influence across categories and brands
7. Not all categories are driven by word of mouth
8. The role of online recommendations in a digital world
9. Measuring digital influence across product categories

Key Findings

  • 44% of US consumers said that recommendation from friends, family members and known acquaintances highly influenced their buying decisions with 42% saying it had a medium impact on their buying decision.
  • Only 22% of US consumers said that online reviews and recommendations highly influenced their buying decision with 46% saying it had a medium impact on their purchase decision.
  • The US consumer’s average lift in purchase incidence from a strong positive in-person recommendation was found to be 10.6%. In other words, an excellent in-person recommendation increases the consumer’s perceived value of products by an average of 10.6% over a neutral in-person recommendation.
  • The lift in purchase incidence from in-person recommendation is well over the lift from online consumer ratings (6.3%), online consumer reviews (7.3%) and online shares via email or social media (9.5%).
  • 74% of US millennials trust in face-to-face conversations about products and brands with their friends and family compared to 56% who trust in conversation with friends/family via email, text & g-chat.
  • 83.2% of US Hispanic consumers trust real life friends & family for information on shopping needs. In comparison, only 55.7% of US Hispanic consumers trust their Facebook friends for information on shopping needs and 43.1% trust online ratings.
  • Globally, consumers recommend non-luxury cars above all other categories. Non-luxury cars scored 50% points in the Brand Advocacy Index (BAI). In the US market, the three most recommended car brands were Kia, Honda and Hyundai (63% each).
  • Smartphones come in second behind cars with a score of 46% points in the Brand Advocacy Index. In the US market, Apple’s iPhone is the most recommended smartphone brand with 54% points. Samsung, coming in at second place, scores 43% points – just below the industry average score.
  • When it comes to purchasing basic everyday goods such as groceries and pet food, US consumers do not care much for either online of offline word of mouth, but look for brands that deliver value in terms of savings. 48% of US consumers say coupons influence them, and 44% say loyalty card discounts influence them when making CPG brand decisions.
  • Digital technology influences 36% of in-store sales on average. Electronics and Appliances is the most influenced category where digital impacts 58% of all final purchases.
  • The biggest driver of digital influence is mobile which influences 19% of in-store sales on average. Mobile’s influence on in-store purchase decisions increased by almost 4 times within one year – from 5% in 2012 to 19% in 2013.
  • 50% of mobile shoppers said search results via smartphones influenced their purchases, followed by 42% who said they were influenced by ratings & reviews.

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Introduction

Influence plays a major role throughout all stages of the customer’s journey, but none more important than during the decision stage when customers seek to zero in on their purchase decision.

During this stage influence can happen either through online or offline touch points.

Offline touch points include people in the customer’s real life social network such as friends, family, colleagues, neighbors and other acquaintances.

Online touch points include social media platforms such as Facebook, Twitter, Blogs, YouTube etc accessed using smartphones, tablets, handheld gaming devices, laptops and desktops.

Understanding the different ways in which offline and online recommendations work can help brands formulate marketing strategies as per the medium.

In addition to understanding the dynamics of offline and online influence, brands also need to be able to measure influence against industry benchmarks.

Online influence is usually measured as volume of word of mouth (buzz) and offline influence is measured as the extent of positive recommendation (NPS).

While these methods of measurements are still relevant, we have more accurate metrics that reflect influence across categories and brands in various markets such as Brand Advocacy Index for offline influence and the Digital Influence Factor for online influence.

In this briefing we will find out which recommendation source – online or offline – is more efficient in driving purchase decisions and how can brands measure both online and offline influence.

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Offline word of mouth has greater influence on purchase decisions

Offline recommendation from trusted people such as friends, family members and known acquaintances is by far the most influential purchase driver among US consumers aged 14 and above.

jpeg Word of Mouth is the most influential purchase driver for US consumers.001_

In an April 2014 survey, 44% of US consumers said that recommendation from friends, family members and known acquaintances highly influenced their buying decisions with 42% saying it had a medium impact on their buying decision.

Overall, that’s 86% of consumers whose purchase decisions were somewhat influenced by offline word of mouth from people they know. Only 14% said offline word of mouth had a low influence on their buying decision.

Online reviews and recommendation from people inside one’s social media circle came in a distant second behind offline word of mouth. The size of US consumers who were highly influenced by online reviews and recommendations (22%) is half the size of US consumers who were highly influenced by offline word of mouth from people they know.

Only 22% of US consumers said that online reviews and recommendations highly influenced their buying decision with 46% saying it had a medium impact on their purchase decision.

Overall, that’s 68% of consumers whose purchase decisions were somewhat influenced by online reviews and recommendations. A considerable portion, 32% of US consumers, said that online reviews and online word of mouth had a low influence on their purchase decision.

Online reviews and recommendations, even when they come from the ones people follow or friend, have a long way to go before they impact purchase decisions as much as offline recommendations.

Online word of mouth, however, beat TV ads when it comes to influencing US consumers’ purchase decisions. Only 20% of consumers said that TV ads highly influence their buying decision compared to 22% for online reviews and recommendations from those within their social media circle.

The influence on purchase decision drops considerably beyond TV ads. Only 14% of US consumers said that online reviews from strangers highly influenced their buying decision. Newspaper ads and emails from brands highly influenced only 10% of US consumers’ purchase decision. Ads delivered via social media platforms and SMS highly influenced purchase decision among only 7% and 6% of US consumers respectively.

While offline recommendation is far ahead of both traditional and online media, when it comes to online platforms consumers are more likely to be influenced by user generated content (reviews and recommendations from people) than by brand generated content (emails and ads).

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Influence is a function of trust in the recommendation source

Offline recommendations are more influential because they have been around longer than online platforms like social media and emails. Consequently, consumers trust in-person recommendations more than online reviews and ratings.

The consumer’s trust in recommendation sources can be measured by the lift in their purchase incidence i.e. increase in perceived value of product following a strong positive recommendation compared to a neutral recommendation.

jpeg In-person recommendations edge out online shares in influencing consumers.001_

The US consumer’s average lift in purchase incidence from a strong positive in-person recommendation was found to be 10.6%. In other words, an excellent in-person recommendation increases the consumer’s perceived value of products by an average of 10.6% over a neutral in-person recommendation.

The lift in purchase incidence from in-person recommendation is well over the lift from online consumer ratings (6.3%), online consumer reviews (7.3%) and online shares via email or social media (9.5%).

The only source of recommendation that comes close to matching the lift from in-person recommendation is professional reviews i.e. expert opinions published offline (magazines and newspapers). Similar to in-person recommendations, professional reviews have be around longer than online sources. The lift in purchase incidence from professional reviews is 10.2%.

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Offline word of mouth is trusted across demographic segments

The prominence of offline recommendation over online sources does not change across demographic segments.

Offline word of mouth from friends and family is the most trusted source of recommendation for millennials and hispanic consumers in the US as well.

jpeg US millennial brand loyalty is driven by personal finance above all other reasons.001_

US millennials trust friends & family over all other forms of media. 74% of US millennials trust in face-to-face conversations about products and brands with their friends and family compared to 56% who trust in conversation with friends/family via email, text & g-chat.

When it comes to online content, reviews from friends & experts garner greater trust than social media content from brands. 68% of millennials trust in online peer reviews and 64% trust in online expert reviews compared to 50% who trust in social media content on Facebook, Instagram & LinkedIn.

Traditional media channels are the least trusted among US millennials. Only 34% of millennials trust TV ads and 44% trust print ads.

Among US Hispanic consumers, trust is highest in friends and family they know in real life. 83.2% of US Hispanic consumers trust real life friends & family for information on shopping needs.

(JPEG) Most Trusted Information Source for Local Shopping.001_

In comparison, only 55.7% of US Hispanic consumers trust their Facebook friends for information on shopping needs and 43.1% trust online ratings.

Interestingly, business blogs are only slightly more trusted than comments from strangers among US Hispanic consumers. 28.2% of US Hispanic consumers trust business blogs ahead of 26.4% who trust comments from strangers.

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Measuring offline influence across categories and brands

The Brand Advocacy Index (BAI), a metric used to measure influence across categories and brands in various markets around the world, calculates the difference between positive recommendations from advocates and negative recommendations from critics.

The BAI survey has been carried out among 32,000 consumers across 14 countries (Belgium, Canada, China, France, Germany, India, Israel, the Netherlands, Portugal, Spain, Sweden, Switzerland, the U.K., and the U.S) covering more than 20 industries (apparel, automobiles, beverages, consumer durables, cosmetics, credit cards, dairy, do-it-yourself, grocery, health care, insurance, mobile telecommunications, pharmaceuticals, restaurants, retail banking, smartphones, tablets, televisions, travel and tourism, and utilities).

jpeg Auto is the most recommended category followed by smartphones .001_

Overall, global BAI revealed that consumers recommend non-luxury cars above all other categories. Non-luxury cars scored 50% points in the Brand Advocacy Index (BAI). In the US market, the three most recommended car brands were Kia, Honda and Hyundai (63% each).

A difference of 13 percent points between the industry leader and the industry average, points to the fact that we need to measure influence both at the category and the brand level. Most industries are likely to have advocacy leaders who score well ahead of the industry average.

Smartphones come in second behind cars with a score of 46% points in the Brand Advocacy Index. In the US market, Apple’s iPhone is the most recommended smartphone brand with 54% points. Samsung, coming in at second place, scores 43% points – just below the industry average score.

The discrepancy in BAI scores between the industry average and industry leaders becomes more prominent in banking, telecoms and grocery sectors.

The banking sector severely lags in consumer advocacy. BAI for retail banking is a woeful 10%. However, the most recommended US bank – USAA – scored an impressive 44% points on the BAI scale well above the industry average and ahead of its competitors – Ally (24%) and American Express (23%).

A similar trend can be seen in both mobile telecoms and grocery sectors. Telecoms scores only 20% on the BAI scale but the most recommended telecoms brand in the US, Virgin registered a BAI score of 43% ahead of Tracfone (35%) and Verizon (27%).

Several studies have shown that advocacy for banking and telecoms rely heavily on service reliability, lack of operational errors, and quality of customer service.

In the grocery sectors, the average industry score stood at 24% while the top 3 US brands all scored almost twice the industry average – Trader Joe’s (49%), Wegman’s (48%) and Publix (42%).

The low BAI score for groceries – a category that gets bought more frequently than others – begs a deeper look into what influences the bulk of grocery purchase decisions made by consumers.

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Not all categories are driven by word of mouth

Research on Consumer Packaged Goods (CPG) has shown that value based marketing tools are more relevant among consumers both young and old.

When it comes to purchasing basic everyday goods such as groceries and pet food, US consumers do not care much for either online of offline word of mouth, but look for brands that deliver value in terms of savings.

jpeg US millennials still influenced by traditional marketing for CPG brands.001_

Consequently, loyalty card discounts and coupons are the top 2 influencing factors for CPG brand decisions among US Consumers. 48% of US consumers say coupons influence them, and 44% say loyalty card discounts influence them when making CPG brand decisions.

Even tech savvy, US millennials are more conscious of value provided by brands, when it comes to CPG. 54% of millennials say loyalty discount cards influence their CPG brand choice followed by 53% who attribute it to coupons.

Brand choices for everyday food and supplies are usually passed down from the parent’s generation during the childhood years. By the time consumers are 18 years old they already know their top three favorites for each CPG product category. There is no need for word of mouth so that they can discover new brands, get information and make a purchase decision. The decision was made during their formative teen years. So all they seek now is value.

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The role of online recommendations in a digital world

In general, offline recommendation is the most effective tool in driving purchase decisions across demographic segments. This does not mean brands should ignore online recommendations. We need to look at how online word of mouth affects purchase incidence across categories.

jpeg In-person recommendations edge out online shares in influencing consumers.001_

Online shares i.e. posts shared by online friends and followers that people come across on their timeline, were by far the most effective online source of recommendation compared to consumer ratings and reviews where the average lift in purchase incidence was 6.3% and 7.3% respectively.

Across 3 categories of – supermarket, automotive, and mini-tablet – the average lift in purchase incidence from a strong positive online share was found to be 9.5%. That breaks down to 11.2% for supermarket items, 9.2% for automotive, and 8.1% for mini-tablets.

Supermarket items i.e. items on a consumer’s weekly or monthly grocery list experience the greatest lift in purchase incidence from online shares.

Most households will have already decided on a list of items to buy from the supermarket. When they come across online content relevant to items on their list, sometimes accompanied by coupons and offers, it’s the final push consumers need to buy the products.

The automotive and mini-tablet product categories, in comparison to supermarket items, are big-ticket purchases that simultaneously serve as utility devices and status symbols. Consumers want an assurance of reliability as well as a guarantee that their friends and family won’t disapprove of their choice. Consequently, online consumer reviews play a greater role in shaping purchase decision for automotive (8.1%) and mini-tablet (7.6%) categories than for supermarket items (6.2%).

Though in-person recommendations are the most prominent source of recommendations, US consumers are warming up to digital sources of influence.

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Measuring digital influence across product categories

Digital Influence refers to the impact of digital technology (which includes smartphones, tablets, mobile apps, social media and the web) on consumers’ purchase decision before and/or during their trip to the store.

Digital technology has greatly impacted the dynamics of consumer influence by giving brands an opportunity to build deep relationships with consumers and by empowering consumers to find relevant information that helps them make informed choices.

Digital influence on offline purchases is measured using the digital influence factor – the percentage of digitally influenced conversions.

Traffic for each store type was modeled statistically, then segmented into trips where digital devices were used either before the trip, during the trip, both before and during the trip, or not at all. Segment-specific conversion rates were applied to arrive at digitally-influenced conversions. The aggregate digital influence factor is a weighted average by percent of total retail sales attributed to each store type.

jpeg Digital technology influences more than a third of in-store purchase decisions.001_

Based on the digital influence factor, US consumers are most likely to be influenced by digital when it comes to:
1. Big ticket items like electronics, appliances furniture and home furnishings
2. Interest or lifestyle based products like sporting goods and hobby related items

Digital technology influences 36% of in-store sales on average. Electronics and Appliances is the most influenced category where digital impacts 58% of all final purchases.

Surprisingly, more US consumers turn to digital when buying furniture and home furnishings (56%) than clothing, footwear and accessories (47%). Even sporting goods, toys, games and hobby related purchases are more likely to be influenced by digital (50%) compared to apparel.

US consumers are least likely to turn to digital technology for information during routine purchases. Digital tools influence 29% of US consumers when shopping at grocery stores, and 23% when shopping at warehouse club stores or department stores.

The biggest driver of digital influence is mobile which influences 19% of in-store sales on average. Mobile’s influence on in-store purchase decisions increased by almost 4 times within one year – from 5% in 2012 to 19% in 2013.

US consumers are using mobile apps to search for products, locations, reviews, ratings and much more. They use smartphones for shopping related activity at home, at work, not their way to the store or inside the store. While most consumers search for information, only a few look for coupons. As such, user generated content drves mobile’s influence on shopping decisions.

jpeg Search results top list of digital influencers among mobile shoppers.001_

Half of all shoppers who used a mobile device prior to purchase are influenced by search results. 50% of mobile shoppers said search results via smartphones influenced their purchases, followed by 42% who said they were influenced by ratings & reviews.

31% of mobile shoppers said mobile search results with information on local availability of products influenced their purchase decision and 30% said emails from retailer they have opted into influenced their purchase decision.

Only 19% of mobile shoppers said group buying or coupon codes influenced them and a smaller percent (9%) said mobile apps influenced their purchase decision.

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