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Webology, Volume 8, Number 1, June,

2011

The impact of electronic word-of-mouth in the distributionof digital goods

Ravi S. Sharma Special Interest Group in Interactive Digital Enterprise and Wee

Kim Wee School of Communication & Information, Nanyang echnological

!niversity, "epu#lic of Singapore$ E%mail asrsharma 'at( ntu$edu$sg

Tushar Pandey Special Interest Group in Interactive Digital Enterprise and Wee

Kim Wee School of Communication & Information, Nanyang echnological!niversity, "epu#lic of Singapore$ E%mail rd$tushar 'at( gmail$com Received April

28, 2011; Accepted June 25, 2011

Abstract

The rapid proliferation of social media networs has presented a platform of opportunities for the

distribution of digital products and related applications! This is commonly nown as word"of"

mouth or #iral mareting and intuiti#ely fits the re$uirements of digital goods in that consumption,

authentication and opinions are communal! %n this short paper, we point out the efficacy of the

phenomenon of electronic word"of"mouth &eWo'( in digital marets! 'ore specifically, we use a

model that encapsulates our understanding of how eWo' impacts economic and social acti#ities

that influence co"consumption! )n empirical study of a typical e*ample of digital products + music

albums + was conducted to test the fundamental premises of our framewor and deri#e $ualitati#e

findings! rawing on the results, we attempt to refine a prescripti#e framewor for eWo' in

general! This is part of an on"going study of the distribution channels for digital media and how

they may be effecti#ely designed! -i#en the proliferation of the %nternet and the complementary

nature of social networs, we belie#e that conte*t sensiti#e eWo' is a ey aspect of digital

distribution!

Keywords

.ocial media/ Web 2!0/ logs/ nline communities

http://research.ntu.edu.sg/expertise/academicprofile/pages/StaffProfile.aspx?ST_EMAILID=ASRSHARMAhttp://research.ntu.edu.sg/expertise/academicprofile/pages/StaffProfile.aspx?ST_EMAILID=ASRSHARMAhttp://www.wkwsci.ntu.edu.sg/http://www.wkwsci.ntu.edu.sg/http://research.ntu.edu.sg/expertise/academicprofile/pages/StaffProfile.aspx?ST_EMAILID=ASRSHARMA

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Introduction and Background

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he )*isdom of the cro*d), often captured #y *ord%of%mouth 'W+( sharing of

opinions and comments, is apparently more e-ploita#le than the traditional print and

conversational opinion sharing paradigm '.rmelini & /illanueva, 01123 4err et al$,

5665($ In this paper, *e report the provisional results of a study on the efficacy of

electronic W+ 'eW+( in the distri#ution of digital goods 'e$g$, content that may #e

consumed via net*or7ed, electronic devices$ 8y eW+, *e generally refer to relevant

opinion sharing #y mem#ers of a social media community among themselves and

prospective others 'Dellarocas, 01193 Dellarocas et al$, 011:($ It is of particular interest

to the study of digital mar7ets *hen this *isdom is a#out hedonistic and utilitarian

products, #rands and services$ It has also #een sho*n that eW+ in virtual

communities does replace to some e-tent the traditional commercial sources such as the

sales force or product #rochures ';epsen, 0112($ hough not synonymous, social media

uses eW+ as a tool for disseminating such e-periential 7no*ledge$ 4ence thee-ploita#le and moneti

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Figure 1. The Rise and Rise of Social Media

.s seen from ?igure 5, the rise of social media as a preferred platform for W+ is as

much due to the phenomenon of the Internet and We# 0$1 as it is due to the

accompanying launch of ne* #logging and *i7i services$

he Word of outh ar7eting .ssociation 'W+.( has categorised W+ into 0

types +rganic B *hen customers *ho are satisfied *ith a product or service

voluntarily #ecome its advocates3 and .mplified B *hen mar7eters launch campaigns

to increase W+ activity in ne* or e-isting communities 'W+., 011=($.lternatively, 8ughin et al$'0151( specify 9 types experiential'from a consumer)s

direct e-perience *ith a product or service, largely *hen that e-perience deviates from

e-pectation(, consequential'*hen consumers directly e-posed to traditional mar7eting

campaigns pass on messages a#out them or #rands they pu#lici

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of%mouth recommendation or dissuasion to change #ehavior and reflects *hat is said,

*ho says it, and *here it is said$ In other *ords, conte-t is 7ey$

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It has #een previously reported that in the face%to%face W+, 5 person is capa#le of

affecting the attitude and #ehavior of appro-imately 0 other people '8urson%arsteller,

011($ 4o*ever, in eW+ 5 person can affect the #ehavior of other people$

!nderstanda#ly so, given the pervasiveness of e%communities, these online influencers

have #een termed )e%fluentials)$

eW+ has hence not only empowered consumers, #ut also added value to economic

activity'?iona, 011($ It has #een reported that consumer%created information has had a

clear impact on sales of #everages, electronic goods and other items '4ennig%hurau et

al$, 011=3 Dellarocas et al$, 011:3 Godes & ay

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interactive online tools over the Internet, user led innovation has inevita#ly touched

ne* heights '

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rahalad & Krishnan

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, 011($ ?rom *e#sites, to forums, and t*eets, many%to%many communication is the

dominant mode of sociali

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ost importantly, some of these social media platforms are #eing used to provide end

user feed#ac7 on e-perience goods and promote user%centric design and innovation$

articularly *hen the #enefit of collective *isdom is capa#le of over%riding e-pert

critiAues or a lac7 of e-posure '.rmelini & /illanueva, 0112($ . recent study #y

8ughin et al$'0151( reported that the 0 7inds of products *here eW+ is most

effective are i( uniAue products *hich have a uniAue loo7 and feel, user e-perience, or

functionality3 and ii( the products *hich are readily visi#le$ eW+ commands a

greater importance *hen the products are hedonic and e-pensive B *hose consumption

is governed #y an affective e-perience 'Dhar & Werten#roch, 0111($ In such

e-periential products, consumer feed#ac7 and e-perience is all the more importantsince the product attri#utes are a#stract$ his feed#ac7 serves as an uncertainty

reducing element in the consumer decision ma7ing process$ he positive effect of

virtual communities on consumer decision ma7ing has also #een studied earlier '/alc7

et al$, 0116($

Figure 2. Types of eWOM channels

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With such a diversity of ideas and concepts, W+. has ta7en a step to*ards

standardising the W+ terminology$ he W+ episode, as defined #y W+.

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9

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'

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W+.

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, 011(, does not really happen #y itself, most times '

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Dye

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, 0115($ he #u

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8urson%arsteller

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, 011($ Deciding on *hat to measure, in a sea of dispersed eW+ channels, as sho*n

in ?igure 0, is a challenging tas7$ oreover, due to the nature of the e-isting systems

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B

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dynamic and repository '

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.rmelini & /illanueva

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, 0112(, it is difficult to arrive at a causal relationship #et*een eW+ and sales$ he

eW+ phenomenon is a

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product focused penomenon rater tan a !rand focused one

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$ 4ence, the consideration of Customer ong erm /alue 'C/

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B

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the lifetime revenues that accrue from a given customer( '

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4ogan et al$

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, 011=( li7e in traditional W+ is minimal$

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eW+ is loo7ed at #y firms primarily for three o#>ectives, the reali

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considered as an uncertainty reducing element in the consumer)s decision ma7ing

process$ Since eW+ is an antecedent as *ell as a conseAuence of the consumers)

actions it is sho*n as #eing affected #y the +utcome o#>ects and impacting the .ctions

o#>ects$ In the .ctions Class, the Creation o#>ect refers to creating a #log, or uploading

the video$ Creation is most effective *hen done #y mavens '

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Glad*ell

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, 0111($ Distri#ution refers to ma7ing a #log or comment pu#lic or sharing it in the

net*or7 or rating it$ Distri#ution is most effective *hen done #y connectors or

salesmen '

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Glad*ell

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, 0111( "eceipt *as ta7en as the act of vie*ing a videoH #logH commentH post or listen

to a song$

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Figure 3. Interaction of different eWOM Obects to generate an Outco!e

Given the *ell understood phenomenon of social net*or7s and its role in the

moneti

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hese al#ums had constantly featured on

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8ill#oard

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'0116( top 011 ran7s$ he motivation #ehind this study *as to esta#lish a clear lin7

#et*een eW+ activities and positive economic outcomes$ 4aving esta#lished that,

*e *ould underta7e further empirical *or7 that *ould loo7 deeper in to the nature of

this lin7$

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+ne ma>or advantage of using the !S mar7et *as that sales ran7ings and figures *ere

availa#le and hence conveniently e-tracted from #ill#oard magaect +riented heoretical ?rame*or7, adapted from W+.

definitions for W+ episode components sho*n in ?igure 9$ Since there are multiple

eW+ units, venues, actions, and outcome, *e have modeled them as eW+ classes

and loo7ed at a fe* o#>ects for each class and one outcome o#>ect% sales ran7ings$

Distinct from the sales data collected as reported a#ove, eW+ data *as collected for

a 2%month period in the 0ndhalf of 0116$ he 00 music al#ums *ere selected #ased on

their outreach among music lovers *ho stay socially connected$ he reason *e

collected eW+ data for a longer period of time than the sales data *as to supplement

our analysis of a time lag effect of the eW+$ In other *ords, *e hypothesi

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Table 1. Multi"#ariate $inear Regression Results %considering ti!e lag&

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Week 4 Week Week ! Week " Week # Week $ Week %& Week %%

'odel

Paramete

rs

"0J1$:

SigJ1$1

"0J1$6

SigJ1$1

"0J1$26

SigJ1$1

"0J1$2

SigJ1$1

"0J1$2

SigJ1$1

"0J1$9

SigJ1$1

"0J1$2

SigJ1$1

"0J1$20

SigJ1$1

comments%

'1$1( '1$15(

videovie*s %

'1$10( '1$15('1$11(

'1$11('1$11(

video

uploads %

'1$1( '1$1( '1$15(

#logs '1$10( '1$1=(

'1$1(

'1$10(

'1$19(

'1$10( '1$15(

Weeks in

(hart

)irst

Rank

'1$19(

*um )ans '1$11( '1$15( '1$10( '1$10(

' ( null hypothesis accepted %i.e.) research hypothesis not supported&.

here *as a time lag effect of 0$ *ee7s$ In other *ords, after this period, the

various eW+ types did not have any correlation *ith the sales$ Co%linearity

#et*een independent varia#les *as a#sent in all *ee7s$8log postings and eW+ generated in ouu#e #ecame more relevant *hen *e

considered the lag or latency$ . dynamic system *as more strongly correlated to

the sales figures among the other dispersed sources discussed$

he three control varia#les considered B num#er of fans, release date of the

al#um, and its chart age, had a greater correlation to the outcome o#>ect in the

model *ithout a time lag effect$ 4ence it can #e inferred that the time scaled

eW+ model *as less affected #y these e-ogenous varia#les and hence e-plainsmore of the variance in sales ran7ings$

Discussion and Conclusion

he ma>or findings of this study are that i( eWom have a shelf%life of a#out 0$ *ee7s

after *hich they do not have any significant impact on sales nor do they correlate *ith

the sales3 ii( #log postings and eW+ generated in ouu#e #ecame more relevant

after a certain lag or latency3 iii( the three control varia#les considered B num#er of

fans, release date of the al#um, and chart age % had a greater correlation to the outcome

in the model *ithout a lag *hich *as hence less affected #y these e-ogenous varia#lesand e-plain more of the variance in sales ran7ings$

We may therefore attri#ute a direct and causal relationship #et*een eW+ activities

'such as #logs, video vie*s or do*nloads and referrals( and economic outcomes 'such

as demand for digital products and their #rand eAuity($ .s anecdotally suggested, this

causal relationship is far more significant than other metric such as the num#er of fans

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or eye#alls '

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8ughin et al$

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, 0151($ 4o*ever, this study comes *ith several limitations$ ?or one, *e concede that

our study focused on the !S music al#um mar7et #ecause of the availa#ility of sales

and ran7 data as *ell as the maturity of social net*or7s and forums focused on such

genre of music$ his is a limitation #ut it opens avenues for further research$ In the

ongoing study *e shall loo7 at the Chinese and Indian mar7ets for digital music

al#ums$ .s *ell, other e-perience and hedonic goods in such emerging mar7ets$

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.nother limitation is that our research may have created a sample selection #ias as *e

studied successful cases 'i$e$, #est%selling music al#ums( only$ hough *e #elieve the

results to #e relatively general across other digital media goods, it *ould #e interesting

to replicate the study in other categories offering different utility value to the

consumers$ he decision to #uy a music al#um is a lo*%cost, lo*%ris7 one, and it

*ould #e necessary to investigate the role of eW+ in the adoption of a ne*

technology, or the purchase of more utilitarian goods or services$ Identifying the mosteffective eW+ channel for a digital good is significant not only for consumers #ut

also for the content providers and syndicators$ .nother aspect *e are currently

investigating is *hether or not eW+ more e-ploita#le and monetiecture that

the sentiment of the eW+ message could have opposite effects on economic

outcome$ It *ould not #e trivial to include more e-ternal varia#les in the study and

perform panel data regression$ .s *ell, a Granger test of causality, *hich incorporates

a time lag #et*een dependent and independent varia#les, could #e performed as *e

*or7 *ith a larger data set, from other regions or for other products$

uch remains to #e investigated in the area of eW+ and social media efficacy$ ?or

no*, our provisional findings indicate a strong and valid lin7 #et*een eW+

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epidemics and the commercial success of the genre of digital goods such as music

al#ums$ 4o*ever, there is reason to con>ecture that in the era of the mo#ile Internet

and the accompanying social media proliferation, conte-t%a*are 'e$g$, time and

location( eW+ is a potent tool in the digital mar7etplace$ o put our findings in the

conte-t of reasoned action and social identification, eW+ has emerged in the social

media space as more effective that search engine hits in the *orld%*ide%*e# precisely

#ecause its tipping point is a notion users related to personally and shape their

su#seAuent cy#er #ehaviors$

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Acknowledgements

his *or7 *as supported #y the Singapore National "esearch ?oundation Interactive

Digital edia "&D rogram, under research Grant N"?$011:ID%ID110:2$ We

are also than7ful to iguel .rroyo 'our colleague at SIGIDE( and to Dr$ Narayan

"amasu##u from the Singapore anagement !niversity for their valua#le input and

thoughts during the course of the study$

eferences

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Chevalier, ;$.$, & ay

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Dellarocas, C$, Phang, $, & .*ad, N$?$ '011:($ E-ploring the value of online

product revie*s in forecasting sales he case of motion pictures$Journal of

"nteractive (aretin#, 05'=(, 09%=$Dhar, "$ & Werten#roch, K$ '0111($ Consumer choice #et*een hedonic and

utilitarian goods$Journal of (aretin# Researc, 9:'5(, 21%:5$

Dye, "$ '0115($ he #u

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!ootnotes

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5$

.e %ocial 4etwor, #ased on the #oo7 FAccidental &illionairesF #y 8en

e