Note: Sample below may appear distorted but all corresponding word document files contain proper formattingExcerpt from Term Paper:
This focus on the positive benefits of consumer word of mouth behaviour is a natural tendency. I certainly like to think that positive comments have a greater impact on my decisions than negative comments. In fact, the respondents to the survey reported that the two factors that had the biggest impact on their airline choices were comparison-shopping on the Internet (38%) and personal recommendations from an acquaintance on Facebook or Twitter (42%). but, although personal recommendations have a clear impact on choices, the question is whether positive comments have a greater impact than negative comments. This distinction has not yet been made with regard to word of mouth marketing effects. The U.S. national election in 2004 was viewed by many as the most negative in recent memory (Johnson, 2011). Why would hard-nosed politicians with limited budgets invest so much in negative advertising if positive comments had greater impact on behaviour? Although we like to believe positive comments have a greater impact on our decisions than negative comments, there are reasons to believe that within certain industries or contexts negative comments have a more pronounced effect on our behaviour. Survey respondents were asked about their recommendation activities for the seven airlines in the UK, in order to measure the number of positive and negative comments for each airline during the previous year.
Have you made a very negative comment to a friend or acquaintance on Facebook or Twitter about your experience flying with an airline in the previous year? (Yes/No)
* (if Yes) Tell us which UK airlines you made a negative comment on Facebook or Twitter about to a friend or acquaintance and to how many people you spoke
* Have you made a very positive comment to a friend or acquaintance on Facebook or Twitter about your experience flying with an airline in the previous year? (Yes/No)
* (if Yes) Tell us which airlines you made a positive comment about on Facebook or Twitter to a friend or acquaintance and to how many people you spoke
Discussion & Interpretation
The first thing that was observed was that easyJet and Ryanair were the only airlines in the study that were profitable in Q3/2010 and they were the airlines with the lowest negative comments among respondents who considered them their primary carrier. easyJet and Ryanair were also the airlines with the highest percentage of positive comments. The single exception is BMI, that squeaked by British Airways, with 93% positive comments. The second observation is that the airline industry is in dramatic upheaval and undergoing structural transformation from low-cost carriers such as easyJet and Ryanair. The result is that all the traditional network airlines are losing money at historic levels.
Negative word of mouth on social media and networks predicts poor profit
The really interesting finding here is that the percentage of negative comments on Facebook, YouTube, Digg or Twitter is highly predictive of operational profit, while positive comments are not very predictive at all. While many people might have anticipated that negative comments are as predictive as positive comments, few people would expect negative comments alone to be predictive of operating profit. The correlation of negative comments is even higher against the five-quarter average of operational profits than it is with operational profits in Q3/2009 (Doganis, 2010).
This makes sense because the five-quarter average contains data over a longer period of time and smoothes out any volatility that might impact a single quarter. The strong negative correlation between operating profit and negative comments suggests that as the percentage of an airline's customers who are making negative comments about them increases the airline's operating profits decrease (Daily Post, 2011, September 5). Conversely, as the percentage of an airline's customers who are making negative comments on social media sites about them decreases the airline's profits increase. This correlation illustrates a very interesting dynamic that appears to be at work in this particular industry.
If we view the word of mouth communication on social media sites among UK airline customers as a media channel then we are saying the greater the frequency and reach of the negative comments about an airline on that channel the greater the negative impact on an airline's profits (Daily Post, 2011).
This is literally what is happening in this industry with traditional media channels, advertisers specify in advance the frequency and reach of their advertisements and then pay accordingly With the word of mouth channel there is good news and bad news. The good news is that you do not have to pay to use the channel for advertising. The first piece of bad news is that you cannot specify the content, frequency, or reach of the advertising. The second piece of bad news (at least for the airlines studied in the current market) is that negative word of mouth advertising is much more predictive of profits than positive word of mouth advertising (Lawton, 2011).
At this point we can answer two of our original questions:
* Does a positive or a negative statement on social media sites have equal financial impact or is one more beneficial and the other more harmful?
* Can the economic value of customer recommendations be quantified?
Not only are negative comments more predictive of operating profits than positive comments but their impact can be quantified. Negative comments on social media sites have more financial impact than positive comments within the airline industry. Every 1% reduction in negative comments co-varies with £4,050,464 of operating profit; every 1% increase in positive comments co-varies with £1,709,300 of operating profit (Daily Post, 2011). The term 'co varies' has been used because there is not yet a proven causal relationship between negative comments and operational profits. However, the percentage of negative comments definitely mirrors operational profits for the airlines within this study to summarize; it appears for this industry at this time more financially beneficial to reduce negative consumer comments about a brand than it is to increase positive consumer comments about a brand (Wangenheim & Bayon, 2007).
Why negative word of mouth is linked to poor profitability
It's time to poke holes in this analysis in order to test these conclusions. We have not yet presented a theory about the causal processes that could explain the correlation of negative comments and operating profit. The competitive story was what Clayton Christensen terms the disruptive transformation of an industry by low-cost entrants (Trusov, et. al, 2009). In Christensen's model of disruptive innovation:
* Incumbent players compete with one another by creating high-margin services for demanding customers.
* Low-cost entrants enter the competitive picture, meeting the needs of the under-served, less demanding segment of the market.
* Low-cost entrants develop product and business models that meet the requirements of less demanding customers at a price that the incumbents cannot match, and still operate profitably.
In this competitive environment:
1. It makes sense that the incumbent airlines would generate more negative comments than their low-cost competitors who have less demanding customers.
2. It also makes sense that the low-cost entrants' ability to operate profitably at a much lower price point would generate higher positive comments from their less demanding customers.
This model of disruptive innovation gives a plausible account for why there might be a negative correlation between negative consumer comments and operating profits among the airlines we studied. But how does this information help marketers in the airline industry do their job? How does understanding the dynamics of word of mouth marketing help marketers build a successful airline, or a successful marketing campaign for that matter? If we take seriously the notion that word of mouth on social media sites is a media channel with frequency, reach and content that has a direct relationship to profitability then airline marketers have several approaches open to them (Arnold, 2010).
You can't manage what you don't measure. The first thing an airline marketer should consider is to track and measure the word of mouth content about their airline: (1) track the number of negative comments its customers are making to their acquaintances about the brand; (2) identify the concerns being expressed by its consumers; and (3) wherever possible, address these concerns to decrease the negative word of mouth (Lawton, 2011). Decreasing negative comments is literally like money in the bank for an airline. Addressing the causes of negative comments might mean changing in some way their product or service offering.
But it may be that their customers are misinformed about or unaware of some aspect of the airline's business. In this case some kind of informational marketing campaign utilizing traditional media could help decrease the negative word of mouth. Another approach is to consider countering negative word of mouth by allocating marketing budget to target the major sources of word of mouth marketing effects. Not all consumers are equally effective in the communication of their attitudes throughout the network. Marketing segmentation approaches have tended to segment consumers by different demographic or product use attributes, but have generally…[continue]
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