The Effect of Word of Mouth as a Marketing tool on Decision Making

By: Marwan Elkahky

Research Methodology PaperSubmitted to the Management Department

Faculty of Management TechnologyThe German University in Cairo

Student Registration Number: 25-8114Tutorial Number: T03

Name of Supervisor: Dr. Sherwat ElwanName of TA: Ms. Youmna Abo Omar

Date: Monday, March 24th, 2014

Table of Contents

1.Introduction.......................................................................................................................... 1

2. Literature Review............................................................................................................... 22.1 Word of mouth.............................................................................................................................. 2

2.1.1 Defining word of mouth.......................................................................................................................22.1.2 The power of word of mouth..............................................................................................................22.1.3 How word of mouth works as a marketing tool...........................................................................3

2.1.2 The types of word of mouth................................................................................................. 42.1.2.1 Positive word of mouth.....................................................................................................................42.1.2.2 Negative word of mouth...................................................................................................................42.1.4.3 Online word of mouth........................................................................................................................5

2.2 Decision Making................................................................................................................ 52.2.1 Definition of decision making..................................................................................................52.2.2 Factors influencing decision making.....................................................................................6

2.2.2.1 Internal Factors....................................................................................................................................62.2.2.2 External Factors...................................................................................................................................6

2.2.3 Decision making strategies.......................................................................................................72.2.3.1 Logical decision making strategy..................................................................................................72.2.3.2 Indecisive decision making strategy.............................................................................................7

2.2.4 Importance of consumer decision making............................................................................7

2.3 The effects of word of mouth as a marketing tool on decision making..........72.3.1 The impact of word of mouth on individual’s decision making......................................7

2.3.1.1 Positive Word of Mouth....................................................................................................................82.3.1.2 Negative Word of Mouth..................................................................................................................8

2.3.2 Impact of factors affecting Word of Mouth and e-WOM on individual’s decision making.................................................................................................................................................... 8

2.3.2.1 Personal Attributes..........................................................................................................................82.3.2.2 Cultural Factors....................................................................................................................................9

Research gap............................................................................................................................. 9

References:.................................................................................................................................................. 10

1.Introduction

Word of Mouth communication has been lately gaining an increased

attention since customers rely on it for information and advice concerning a

precise new product, or even a company/brand beforehand buying that product or

dealing with that company/brand (Moldovan, Goldenberg, and Chattopadhyay,

2011: 110). Thus, word of mouth is known as oral communication between two or

more people concerning a brand, product or service (Woodside and DeLozier,

1976:13).

The customers’ buying decisions are affected to a larger extent by the

recommendations or references given by their friends and adjacent ones than by

any other means of information obtained through publicizing and advertising

(Arora, 2007:51).

The aim of this study is to discuss the effects of word of mouth as a

marketing tool on decision making by examining both positive and negative

impacts on consumers’ decision making. In addition, it explores how personal

attributes and cultural factors that affect word of mouth impact consumers’

decision making. Word of mouth has a huge influence on the decision making of

consumers; therefore, it is important to deepen in this research.

The paper consists of three chapters. The first chapter discusses the

definition and effects of both word and e-word of mouth. In addition to the factors

that affect both that include personal attributes as well as cultural factors. Finally

the importance of word of mouth will be tackled. The second chapter discusses

the definition of decision-making followed by the factors that affect them, then

the strategies and finally the importance of decision-making. The third chapter

discusses both the positive and negative effects of word of mouth on decision

making in addition to how personal and cultural factors that affect word of mouth

have great impact on decision-making. The fourth chapter describes the research

gap, the research question, and the methodology through which these are to be

examined. Ultimately, the fifth chapter summarizes the conclusion of the research

and its findings.

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2 .Literature Review

2.1 Word of mouth

The next paragraphs talk about word of mouth, which is the transferring of the

information between people, and how people respond to word of mouth, and the power of

word of mouth. which people think that it is the most trusted source that people will

depend on, and how the word of mouth works how people use it and take advantages

from it and how it is used as a marketing tool. Also the types of word of mouth whether it

was positive word of mouth or negative word of mouth, and also if it was offline word of

mouth or online word of mouth

2.1.1 Defining word of mouth

Word of mouth is the process of transferring the information between people from

one person to another through oral communication, and that’s why word of mouth has

become one of the most important strategies in all-marketing activities and it gained a

heavy weight in the commercial world (Lo 2012:188-189). Also what actually stays in

our minds and what is always remembered and believed in is what our friends say, that’s

why there is no powerful and persuasive communication strategy or technique than

people talking to each other and with all the new technologies that have been discovered

in the commercial worl d word of mouth is most important, (Barber and Wallace

2009:36).

However word of mouth communication came from the fact that people take and

consider personal information or sources are trusted and trustworthy more than any other

source (Hong and Yang 2009:382). Since friends and family members are involved in

such process, so this makes the word of mouth more powerful as it is said from a trusted

source and perspective based on their previous personal experience (Gildin 2002:94), so

word of mouth transfer the information

2.1.2 The power of word of mouth

Everyday people see hundreds of commercials and TV ads and radio ads and a lot

of commercials but when a friend or a family member talks about a movie or a CD

people would watch that movie rather than all other ads recommended and that’s why

word of mouth is thousands of times powerful (Gildin 2002:98). Although 80% of the

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sales of any company were influenced by people rather than the company marketer and

65% of people search hear from family members friends rather any other marketing tool

(Mason 2008:208).

Also word of mouth communication can affect the psychology of the person

because people share their experience with each other (Lo 2012:189). Some Companies

realized the power of word of mouth and started hire people to do word of mouth for

them, but they could because it works effectively when it's not fake it must reflects the

true passion(Barber and Wallace 2009:37). What makes it more powerful and more

persuasive is that people that talk about a product or service are independent people like

family and friends they have no commercial interest they will not gain anything by

distorting the truth or persuade other to get this product or service and that’s what barber

and Wallace talked about the true passion (Gildin 2002:99).

It has shown that word of mouth can influence a lot of conditions such as

awareness, perceptions, behavior and expectations and it is more important and

trustworthy than the advertisements and it was stated that word of mouth was nine times

effective than advertisements (Buttle 1998: 242).

2.1.3 How word of mouth works as a marketing tool

Word of mouth likely needs activities to make people talk and to encourage the

consumers and the customers to talk about the product or a service to their friends and

families, and it includes keeping or raising the customers satisfaction to spread the word

of mouth and spreading opinion leaders. (They are few but they are people who have the

persuasive skills they have the knowledge and the information about the idea and they

encourage the people for the new idea) and reference groups (Mason 2008:207).

Although one of the reasons that affect working of word mouth is that the consumers are

not satisfied or are not motivated enough. Because when they are not motivated they

don’t feel to engage in word of mouth so the products must satisfy the consumer (Chung

and Darke 2006:270).

Gildin (2002:102) explained using promotional tools to satisfy a customer,

salespeople must be trained how to treat and interact with consumers with respect and

how to do anything just to spread the word of mouth. For example the chance to try a

service or product without buying it, making special events or something that will force

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people to talk about the company such as sponsoring for funny event, and also providing

a good customer service, better quality service all of this things makes the consumers

satisfied and motivated to engage in spreading the word of mouth about the company.

2.1.2 The types of word of mouth

There are four types of word of mouth the positive and the negative, and also the

online and the offline, so the next paragraphs will be talking about the definitions of these

types and how the types influence the people.

2.1.2.1 Positive word of mouth

(Lo 2010:193) metnioned that the influence of word of mouth can be either

positive or negative and the positive can increase the customers intentions to buy the

product but the negative can reverse that and since people tend to spread their negative

more than their positive so the negative is much powerful in influencing the people and

have a major problem with the marketers. Moreover consumers feels unlikely or tend not

to engage in positive word of mouth even when they have good personal experience with

a product, but at the same time when they have a negative experience they feel or they

have the willingness to engage in negative word of mouth (Chung and Darke 2006:270).

2.1.2.2 Negative word of mouth

Companies started to take care of word of mouth but at the same time there are

two ways the positive and the negative word of mouth and the negative can have a

disastrous impact on the company sales and reputation and that’s why dissatisfied people

tend to spread the negative experience and negative word of mouth than the positive

ones. And that’s why positive experience is expected and easily to be forgotten but the

negative experience makes people sad and angry and confused and also encourage them

for spreading the negative word of mouth (Gildin 2002:97). In one of the researches

highlighted that from 30% to 90% of the dissatisfied customers refuse and ignore to

repurchase from that brand again, and also they start talking about their dissatisfaction

and spreading the negative word of mouth will increase the dissatisfied customers and

this will lead to a long lasting effects on the brand sales and image (Richins1983:68).

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2.1.4.3 Online word of mouth

The internet has changed a lot of people behavior and supported sharing

information easily and changed the way how consumers share their negative or positive

opinions, the offline word of mouth or the old word of mouth communication was spoken

words transferred from one person to another while talking face to face. On the other

hand the online word of mouth consisted of sharing the information, opinions and

personal experience through written words (Meiners, Schwarting, and Seeberger

2010:84) and because of the Internet the world became more connected to each other.

Also it became so easy for the consumers to get and obtain the information needed and

the advice that they are waiting for faster and easily from discussion forums, online

comments, chat rooms, and people online (Gildin 2002:105-106)

Lo (2010:193) discovered that the written words discussed by consumers on the

online forum that is related to the product or the service can strongly increase the sales

and the intention to buy the product, which means that the written word or online word of

mouth can indirect influence and persuade the consumers to buy the product.

The online user reviews became one of the most important techniques and it can't

stop gaining popularity in the online word of mouth world, which the consumer has

created it to present the new experience or the information or also evaluations and

opinions regarding the product. That’s why half of the consumers who buy from the

online shopping malls depend on the other online users reviews. (Park, Lee, and Han

2007:125)

2.2 Decision Making

The following chapter discusses the definition of decision-making, the factors that

influence it; internal and external factors, in addition to its strategies, which include:

logical decision making strategy and indecisive decision making strategy. Finally, it

explores the importance of consumer’s decision making.

2.2.1 Definition of decision making

Acat and Dereli (2012:2671) defined decision making as the method that an

individual undergoes of choosing one option out of all the choices to reach his/her target.

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Baraldi (2013:339) also added that decision-making is the interaction or communication

that helps in providing future possibilities of actions. Studies proved that decision-making

is reached successfully in communication, specifically in, conversations which are widely

used to explain methods that achieve decision making in arranged sequences by

exchanging ideas. Hawkins and Mothersbaugh (2009: 496) were more precise and

defined consumer decision making as prudently assessing the qualities of a set of

products, brands, or services and selecting the one that solves the demand for the least

cost.

2.2.2 Factors influencing decision making

Decision making varies from one person to another according to each person’s

priorities and lifestyle but there are two main factors that influence making decisions;

internal and external factors. Both factors work jointly to form that leads to decision

making (Hawkins and Mothersbaugh, 2009:467).

2.2.2.1 Internal Factors

Internal factors consist of personal traits that are related to psychological and

sociological aspects, which result in different personality traits. These internal factors

involve personality, perceptions, motives, beliefs and attitudes, learning, memory and

emotions (Tan, 2010:2912; Hawkins and Mothersbaugh, 2009:467).

2.2.2.2 External Factors

Hawkins and Mothersbaugh (2009:467) pointed out that external factors are daily

interactions with family, friends, and people around which include cultural and social

factors that affect people’s needs and help in making the decision process much easier.

Adding up, Tetteh (2008: 2) stated that the use of word of mouth and receiving

information from close contacts such as family and friends play a great role in the

decision making process of an individual that is considered an external factor. Tan

(2010:2912) also added that external factors include subcultures, demographics, reference

groups and marketing activities. Internal and external factors help finalize the decision

making process that provide satisfaction to consumers (Hawkins and Mothersbaugh,

2009: 467).

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2.2.3 Decision making strategies

There are different decision making strategies that individuals use while making

their decisions. These strategies clarify why individuals in facing same situations use

different strategies. These strategies include: Logical decision making strategy, and

Indecisive decision making strategy.

2.2.3.1 Logical decision making strategy

Logical decision making strategy is defined as the strategy of gathering and

examining information about different choices to make a decision by evaluating both the

positive and negative views (Acat and Dereli, 2012:2671). However, All of us use this

strategy in all our decisions. As we always seek for a better choice for us and on the other

hand everything in the world has it’s own positive and negative benefits.

2.2.3.2 Indecisive decision making strategy

Indecisive decision-making is explained as the strategy of being dissatisfied or

unpleased with decisions, which lead to frequently making changes. Therefore,

researchers argue that people who use indecisive decision making strategies should be

aided to be more confident and satisfied with them to make the right decision (Acat and

Dereli, 2012:2671). These decision types does not only affect the consumer only but it

also affect the marketers themselves, however the consumer decision is consisted of a lot

of alternatives and each one of them can directly influence the lifestyle of the consumer,

so decision making is a talent due the difficult trade-offs that people must face.

2.2.4 Importance of consumer decision making

There are lots of factors can affect and influence the desires of the buyer as for

example the environment around him, people that we interact with, another factor is that

the decisions of people always adjust themselves to achieve the fulfillment of their needs,

and this is part of the consumer decision process (Hawkins and Mothersbaugh, 2009:

467). Since decision-making is a sequence of an essential part in the buying process, it is

considered vital for consumers. Decisions are usually difficult to make due to the variety

of options one has to choose from as this sequence involves recognizing the product,

choosing the suitable beneficial one and accessibility of the product (Robbins, Judge, and

Hasham, 2011: 10).

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2.3 The effects of word of mouth as a marketing tool on decision making

By now the paper had already discussed the two main variables, which are the

word of mouth and the consumer buying behavior, moving then to the relationship

between them.

2.3.1 The impact of word of mouth on individual’s decision making

Word of mouth has a huge impact in affecting the purchasing decision of a

consumer since the most competent method for a customer to gather data is by asking

other people concerning the product and assessing their experience and evaluation by

knowing whether it coiled affirmatively or negatively in order to make the decision

(Bansal and Voyer, 2000:167). Customers make easy and quick decisions when they have

précised information about the product or service they are willing to buy (Arora,

2007:57). Customers rely on WOM to cut their chance derived from the uncertainty in

making decisions (Steffes and Burgee, 2009:43). Researchers have even pointed out that

the power of WOM might alter people’s attitudes and selection of a product nine times

more than standard mass media and traditional marketing (Hong and Yang, 2009: 383).

2.3.1.1 Positive Word of Mouth

Positive word of mouth affects customers and gets them attached to precise

products or services (Lo 2012: 194). It is usually generated when the consumer becomes

more confident to take the decision and purchase the desired product (Hong and Yang,

2009:383). Hence, for a person to be confident enough and satisfied to make the decision,

the product or services have to encounter expectations. Satisfied customers of a precise

product, brand or a company usually have the desire to endorse it to others and allocate

the experience alongside others (Bansal and Voyer, 2000:167). The word of mouth which

people share their satisfaction with other people concerning certain product or service

that indirectly influences the receiver of the word of mouth to unconditionally or

conditionally buys the product. (Arora 2007: 189) A relationship between word of mouth

and consumer behavior was found in the positive word of mouth as it increases the sales

of that product. (Lo 2012: 188-189).

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2.3.1.2 Negative Word of Mouth

On the other hand, consumers tend to remember every small negative point they

hear about so if a precise product was producing a negative WOM or the firm has a bad

standing, the customer finds it risky and unsafe to buy it and therefore, the negative

WOM concerning the product will diffuse to his circle and relations (Hong and Yang,

2009:383). Dissatisfied consumers usually inform their families or even adjacent ones

about their dissatisfaction of a precise product, brand or even a company, which leads to

mistrust, and keeping away from them (Lo, 2012a: 194). As it result in avoiding that

product because people share between each other’s their dissatisfaction.

2.3.2 Impact of factors affecting Word of Mouth and e-WOM on individual’s

decision making

2.3.2.1 Personal Attributes

Since trust is mutual between family members and also friends, the decision

making process will be definitely affected after WOM communication. Therefore, there

is a positive relationship between word of mouth and trust which is a personal attribute.

On the other hand, e-word of mouth won’t have the same level of credibility since

customers don’t know the WOM senders (Fan and Miao, 2012:176).

2.3.2.2 Cultural Factors

Lo (2012a:194) stated that a culture has a positive impact on the words of mouth

and consequently decision making. Similar level of cultural interest creates a motive

among people to spread positive word of mouth that leads to making the decision of

buying. In addition, customers with high culture individualism also provide considerably

towards the creation of positive word of mouth that affect positive decision making and

vice versa

Research gap

Upon reviewing the previous literature review it was discovered that all the

researches were trying to know everything related to word of mouth and Decision

Making and the relation between each other only in the European and the Asian, however

all the researchers neglected and ignored to know the relationship of word of mouth as a

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tool of marketing in the middle east especially in Egypt, and since Egypt is one of the

huge countries in the middle east, and it carries a heavy weight of the market of the

middle east, so it can't be neglected like that, it deserves to show more importance and

show the effect of word of mouth after the revolution, and since the Egyptians has a

different mindset from the Europeans and they are easy to be persuaded with anything

and easily influenced, this would be considered as problem that will face word of mouth.

So this research faced one main gap, so this will lead to one main research question

which is '' the effect of word of mouth as a tool of marketing on decision making in

Egypt?''

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