Analysis of Word-of-Mouth Promotion Tool on Business Success: A Study of SMEs in Europe

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Abstract

This study examines the role word of mouth plays in the success of a business. It may be classified under the “promotion” head of the marketing mix, although it is not in control of a business and is almost purely external to the business. This research aims to study the impact of word of mouth on the short run and long run success of a business. The research question to be answered was “What is the role of WOM in making European SMEs successful?” Four hypotheses were formed to study the relationship between the two variables. The first focuses on the impact of WOM on brand image, while second studies its impact on sales. The third hypothesis tests the notion that a positive brand image and sales are positively related. The last hypothesis says that sales are positively influenced by brand image & WOM. All apart from the fourth hypothesis were accepted and found to be true.

 
Table of Contents
Abstract ii
List of Tables. v
List of Figures. vi
Chapter One - Introduction. 1
1.1 Introduction. 1
1.2 Background & Context 1
1.2.1 Promotion. 1
1.2.2 Words of Mouth (WOM) 1
1.2.3 Business Success. 2
1.3 Research Question with Supporting Aim & Objectives. 2
1.3.1 Research Question. 2
1.3.2 Research Aim.. 2
1.3.3 Research Objectives. 2
1.4 Research Significance. 2
1.5 Research Structure. 3
Chapter Two – Literature Review.. 4
2.1 Word Of Mouth. 4
2.2 Brand Image. 6
Chapter Three – Methodology. 10
3.1 Research Philosophy. 10
3.2 Research Approach. 10
3.3 Research Instrument 11
3.4 Research Sample. 11
3.5 Hypothesis & objectives. 12
3.6 Research Analysis. 12
Chapter Four – Findings. 13
Chapter Four – Analysis. 24
H1: WOM has a positive impact on brand image. 24
H1: WOM has positive impact on sales. 25
H1: Positive Brand Image is positively related to Sales. 27
H1: Sales are positively influenced by brand image & sales. 28
Chapter Five – Conclusion. 30
Evaluation. 32
References. 33
Appendix A – Questionnaire. 35
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

List of Tables

Table 1: Your business belongs to which industry?. 13
Table 2: Your sales turnover annual 14
Table 3: Your brand image in consumers mind is. 15
Table 4: It matches your consumers’ personality. 16
Table 5: It promotes what you want to promote. 17
Table 6: Overall, you are satisfied with the image of your brand. 18
Table 7: What actions do you take to spread positive WOM... 19
Table 8: You consider WOM part of marketing. 20
Table 9: You use internet to promote WOM... 21
Table 10: You believe that quality products result into WOM... 22
Table 11: No separate effort required except quality. 23
Table 12: Hypothesis 1. 24
Table 13: Hypothesis 2. 25
Table 14: Hypothesis 3. 27
Table 15: Model Summary. 28
Table 16: ANOVA.. 28
Table 17: Coefficients. 29
 

 

List of Figures

Figure 1: Your business belongs to which industry?. 13
Figure 2: Your sales turnover annual 14
Figure 3: Your brand image in consumers mind is. 15
Figure 4: It matches your consumers’ personality. 16
Figure 5: It promotes what you want to promote. 17
Figure 6: Overall, you are satisfied with the image of your brand. 18
Figure 7: What actions do you take to spread positive WOM... 19
Figure 8: You consider WOM part of marketing. 20
Figure 9: You use internet to promote WOM... 21
Figure 10: You believe that quality products result into WOM... 22
Figure 11: No separate effort required except quality. 23
Figure 12: Hypothesis. 24
Figure 13: Hypothesis 2. 26
Figure 14: Hypothesis 3. 27
 
 

Chapter One - Introduction

1.1 Introduction

The research focuses on the analysis of word-of-mouth promotion tool on business success. The research study primary belongs to the marketing field. The building blocks of marketing, “4Ps”, define the boundaries of marketing. The fourth “P”, promotion is based on the promotional mix, under which word-of-mouth (WOM) comes. This research study checks the role WOM plays in making a business successful in the short, and the long run.

1.2 Background & Context

The research covers several aspects, mainly belonging to the field of marketing and management. WOM, promotional tools, and business success are the key words for the research study, and these need to be explored in order to develop a base for it.

1.2.1 Promotion

Kotler, et al. (2013) asserted that promotional tools perform one of the basic economic functions, giving out information about commodities that are circulating in the economy. However, in the field of marketing, it not only takes into account the economic. Its major focus lies in benefiting the company. This basic function of creating awareness about the product has evolved over the period of time and has been affected by technological factors. It is important for a company to promote its product, not only to create awareness, but to ensure that consumers have a positive perception about the product. It not only assists consumers in making a decision regarding product purchase, but it also provides heuristics to them in order to skip a few steps in the decision making process. Most importantly, it plays a vital role in developing consumers’ purchase intention (Solomon, et al., 2006).

1.2.2 Words of Mouth (WOM)

King, et al. (2014) commented on WOM, “When consumers needed information, they turned to marketer-generated sources, looked at third-party certifications, or sought advice from friends and/or relatives in conversations ‘over the backyard fence’”. The last aspect on which King, et al. (2014) commented, seeking advice from friends or relatives, is known as WOM. However, King, et al. (2014) work focuses on electronic WOM, in which the base of advice seekers and givers has increased massively. It has been established in the academic field that WOM is the most powerful promotional tool. It can either destroy a brand or push the brand to the limit where consumers fall in love with the brand (Unal & Aydın, 2013).

1.2.3 Business Success

Sadler (2003) was of the view that the term business success cannot be limited to some specific metrics. However, there are some factors without which a business cannot survive. These survival factors make a business successful to some extent. One of these factors is profitability or positive operational cash flow. For companies that have surpassed the barrier of loss avoidance and profit making, other factors become important. For instance, multinational giants like Coca Cola do not focus on profitability or survival based factors. These companies set unique goals and achievement of those goals is tagged as “success”. For some companies, developing a positive brand image might be a success. Factors like sales and brand image are important for those companies that are in survival mode or have limited resource.

1.3 Research Question with Supporting Aim & Objectives

1.3.1 Research Question

The main research question that this research study aims at answering is:
  • What is the role of WOM in making European SMEs successful?
This question gives direction to the whole research and gives an idea about bounders of this research.

1.3.2 Research Aim

The research study aims at examining the role of positive or negative word-of-mouth among consumers (via various channels) on brand image of companies along with sales.

1.3.3 Research Objectives

Following are the research objectives for the study:
  1. To explore the functioning of WOM in terms of consumers’ cognitive process.
  2. To ascertain the scope of “success” for European SMEs.
  3. To study the dynamics of brand image.
  4. To study the impact of WOM on brand image.
  5. To study the impact of WOM on sales.
  6. To study the impact of WOM on combined success factors (sales and brand image).

1.4 Research Significance

Chang & Wu (2014) conducted a study to find out the impact of negative WOM on brand commitment, and it was found that negative WOM decreases brand commitment. Source and information credibility acted as strong moderating variables. Moreover, it was concluded that marketers need to take negative WOM on their platforms in order to address the problems that the consumers are facing. Another study by Bambauer-Sachse & Mangold (2011) studied the impact of WOM on brand equity, and it was found that there is a positive relationship between brand equity and positive WOM. Both studies took sample from non-European consumers. Moreover, both studies do not cover brand image. It can be argued that brand equity has a direct relationship with brand image, but the nature of both variables is quite different as brand equity is quantitative in nature, and brand image is qualitative in nature.

1.5 Research Structure

The next section of the research study is based on secondary sources as it covers existing theories and models relate to the research study. The second chapter, literature review, covers major and relevant theories related to brand image and WOM. Moreover, it discusses the literature gap that the research study aims at covering. The third chapter, methodology, covers the research design for the research along with sample size and sampling technique. On a broader level, it also discusses the research approach and philosophy that is employed for the research. Research variables and metrics used to measure them are also discussed. The fourth chapter, findings, covers the results gathered via data collection tools and discusses them according to objectives. The fifth chapter, analysis, analyses the results reported in the fourth chapter. Results are linked with secondary sources that are discusses in the second chapter. Lastly, the sixth chapter, conclusion, concludes the whole research study and checks whether research objectives have been met or not.

 

Chapter Two – Literature Review

2.1 Word Of Mouth

Word of mouth refers to oral communication that is not based on any longing of monetary gain and is done between the customer and another person. It is specifically related to the brand, product or service. According to Dabholkar, et al. (2000), it indicates the likelihood of a customer to recommend a product or service to others.  The term may refer to a conversation carried out between existing customers and other individuals/groups, who may be prospective buyers. Word of mouth plays a major role when customers face problems or are evaluating risks. It is an input made to convince buyers and also acts as an output after the purchase.
One of the foundation studies on word of mouth was conducted in the Harvard Business Review. It identifies four main motivators of word of mouth engagement: “perceived product-involvement, self-involvement (fulfilment of emotional needs from the product), other involvement (a need to give something to the person receiving the WOM transmission), and message involvement (talk that is stimulated by the way the product is presented in media)” (Dabholkar, et al., 2000). According to Hennig-Thurau & Walsh (2004), the study proved to be effective but failed to make a significant contribution to the development of this field. Numerous researchers aimed to fill the vacuum. The most prominent amongst these studies is by Sundaram, et al. (2005). They conducted in depth research on the subject and found four positive motivators and four negative motivators regarding WOM engagement. Positive motivators were: “altruism, product involvement, self-enhancement, helping the company”; negative motivators were “negative WOM altruism, anxiety reduction, vengeance, and advice seeking”. WOM behaviour can also be attributed to other individual factors such as ‘sociability’. The effectiveness of the WOM message depends on the receiver of the information and how it is encoded. This can also be seen in situations where a customer has experienced the product or brand in the past, and when the message is in line with the receiver’s existing information. In general, there is consensus amongst researchers on the power and impact of WOM, in comparison to other marketing communication mediums (Sundaram, et al., 2005).
An indication to identify loyal customers is that they make an effort to share positive brand knowledge. WOM provides inspiration and has the ability to change the buyer’s viewpoint and attitude. Loyal consumers provide free marketing and earnings for a brand. As compared to products, services are difficult to evaluate and therefore higher in risk. Therefore, “service contexts result in high menace- alertness with their insubstantiality, variability, fragility and indivisibility” (Herr, et al., 2001).
Even before the advent of social media and other online communication, word of mouth was regarded as   a reliable marketing tool (Lilien, et al., 2000). Such online communication has led to done at a large scale has contributed to economics literature about these systems. e.g. development of e-Bay (Dellarocas & Chrysanthos, 2003). More focused studies have also been done in relation to analysis of consumer goods. Chevalier & Dina, (2006) carried out a study comparing two websites: Barnes & Noble and Amazon.com to study their buyer reviews, which were based on the sales of one another.
In reference to TV shows, Godes & Mayzlin (2004) found that the distribution of interactive communications among online groups was strongly correlated. Dellarocas & Chrysanthos (2003) believe that the best indicator to forecast profits is the average statistical ranking of a buyer’s views. On the other hand, Duan & Whinston(2005) questioned this notion with reference to the impact of movie reviews on movie ticket prices. Clemons, et al. (2012) found an increase in sales caused by positive responses and word of mouth. It was also found that suggestions regarding products have shown major influence on the relationship between product reviews and sales of Amazon.
The study explains the relationship between product reviews and sales but does not show the effect on the actual worth of the product. Time scale data investigation has also been taken into account, which is the sample size, has been increased but the time frame for feedback has not been accounted for.  Consumer opinions and feedback do not accurately represent product features due to ‘Platform exploitation’. This means that companies often hire professionals to spread false high ratings for the product or brand in order to improve word of mouth. Dellarocas & Chrysanthos (2003) created a theoretical framework to illustrate how businesses constructed a hypothetical model to show how producers exploit best possible investment. Results showed that such exploitation results in the creation of a positive image of products through reviews that provide equal or more knowledge as compared to the regularly available information.
Marketing research suggests that the WOM is an important tool for customers to make decisions and find solutions with the help of others’ suggestions. It allows customers to obtain information that minimizes the risk and helps them evaluate products (Dabholkar, et al., 2000). The influence of WOM can be evaluated through a person’s identity, beliefs, activities and decisions. Studies based on the ability of WOM to provide information show that individuals’ judgments are dependent on their access to WOM information. Widely studied literature discusses the mediating effect of consumer’s preferences for accessible and recent information received through WOM.
Information attained through WOM is dominated by feelings based on an individual’s confidence in his choice, before the WOM information was received. The consumer’s considerations for product choices as well as the influence of WOM on product analysis and buyer choice, determine the quantity of WOM information received.
Source so f WOM are mostly, if not always, individual knowledge sources that may be strongly or weekly related, depending on recipient and sender of the suggestion (Duan & Whinston, 2005). In the case of the internet, the bond is weak as suggestions, and reviews may be coming from unknown people, for example on product review websites. Contrary to interpersonal conversations, the online consumer is unable to utilize “likeness, excellence and receptivity” to determine the trustworthiness of online information.
Hypothetical layout of attribution hypothesis may be employed to analyse customers opinions regarding WOM received from weak bonds. The direct and indirect impact of informal inference on brand image and purchase decision depends on the harmony of the cause among people and the repetition of the cause.

2.2 Brand Image

Corporations work persistently to form brands, which are their indispensable assets. Brand formation demands a great amount of input of efforts. Managers put in a lot of efforts to create powerful brands by generating brand chronicles that allow the consumers to the affiliate with the brand properly and remember it vividly (Rapp, et al., 2010). Stories pertaining to brands are often based on a certain storyline, characters, climax and an overall impact that creates empathy in customers and lead to long-term retention of the brand in their minds. A brand story tends to yield a compelling effect via impactful narration i.e. by taking the consumers into the world of brand account. Dove’s ‘Real Beauty’ or Ben & Jerry’s website depicting its historical line are both examples of campaigning via brand stories (Singh & Stephan, 2012).
Stories of this kind benefit the firm by forming reliable relationships with consumers as a product of providing topics of conversation between the customers and companies as well as among the customers. Such conversations also lead to customer participation in crafting brand stories (Escalas, 2004). Therefore, brand stories can allow creation of brand awareness, understanding, affiliation, identification, memory and also in making the brand more meaningful (Singh & Stephan, 2012). Formerly, a number of advertising practices have been employed by marketers in order to convey their brand stories to the customers, and customers have also been associating their stories with the brands’. Previously; however, firms had a control over their brand stories and the information they gave out; whereas, in the present day scenario, social media has taken over the control on their brand stories (Kuksov, et al., 2013). Customers are now capable of sharing and spreading their personalized forms of brand stories which cannot be denied by the firms, even if their activity on social media is limited.
In addition to that, companies should learn to admit their mistakes due to losing authority. The brand stories spread by customers are derived from their past brand experiences as well as their expectations in the future. These experiences can either be pleasing like admiring the firm or spreading the word of mouth or can be discouraging like customer complaints. Stories produced by customers are available both online and offline. However, stories on the social media are of greater importance owing to their higher impact, access, exposure and rapidness. Brand managers are rapidly losing authority as a result, but they can orient these alterations in the brand accountability to generate even more promising brand stories. They possess a chance to integrate customer feedback and social media into their marketing campaigns and hence take advantage of this escalating trend. Few brands have realized the significance of customer opinions and the role they play in brand success (Zarrella, 2009).
Corporations tend to utilize the information obtained through the medium of social networking sites in improving their offerings that in turn escalates their brand recognition. The principle challenge faced by brand management team is to have to concord the stories crafted by customers and mediums with that of companies’. Fundamental theories related to branding modulated cognitive thinking in the customers; however, brands can be established via apt marketing strategies too. The authority over such marketing strategies is held by the companies n brand is handled as an asset. Prior to comprehending the social media impact on brand recognition, it is imperative to grasp what a brand is (Escalas, 2004).
A brand is a collaboration of knowledge reserves of customers, product information and the human characteristics associated with it. Thus, a brand is only an array of cognitive ideas going on in the customer’s mind uncontrollably. Likewise, brand identity is a product of already laid down specifications, advantages and ideas induced in customer’s mind through the use of marketing techniques. Story-telling regarding brands is one of the most practiced strategies. However, this entire strategy assumes that all exposed people grasp these stories just like the targeted customer base of the firm. Therefore, it can be confirmed that the brand image is viewed in the way the firm depicts it hence correlating the brand image and identity. Customers can make buying decisions based on the manifested brand identity. It plays the role of a thought-processor helping customers to analyse their buying options thereby minimizing the expected risk and saving time. Companies vigorously work to establish brands that are their most valuable assets. A lot of thinking goes into creating a brand. Directors attempt to create a promising brand by incorporating brand stories that increase clients’ understanding of the brand. A brand story, on the whole, is based on the plot, characters, climax and meaning that mediates empathy in the customers and helps them retain the brand for good (Woodside, 2010).
Demonstration of brand stories is challenging e.g. Dove’s ‘Genuine Beauty’ and Ben & Jerry’s site focusing the history of the brand (Singh & Stephen, 2012). Stories of this kind allow the companies to build reliable relationships with their clients, providing them a subject of conversation with the company itself as well as the purchasers. Similarly, these arguments allow purchasers to get interested and hence add their personalized versions into the main brand story. As a result, the brand stories allow the integration of watchfulness, thinking, empathy, distinction, feedback and recognition to the brand (Singh & Stephan, 2012). Formerly, the marketers have employed various schemes e.g. projecting their brand stories to shoppers.
Buyers have long been mixing brand stories with their version of stories. However, at those times, companies enjoyed the authority over their brand stories and conveyed information as they desired but in the present day scenario, social media have employed brand managers to lose authority over their brand stories (Kuksov at al., 2013). Buyers are now capable of incorporating their individualized versions of brand stories that cannot be ignored by the corporations whether or not they are actively participating in social media activities.
The resulting information about the brand or brand value in the perception of the clients can be employed to forming and gaining additional stakeholder repute. This mindshare viewpoint of evaluating focuses primarily on overt orientation of brand administrators and moreover, a fake control. In accordance with anyone’s expectations, it has overpowered brand management review for the past many decades. The social media networking websites as well as mediums of the same kind have by and large, modified the awareness and operation of the collaboration between consumers and suppliers. A diversity of channels can be employed to project the brand and publicize it before the targeted customers. Additionally, social media provide an opportunity to users to share their personal experiences on a public, firm-mediated, social platform. Studies have formally stressed upon the temptation in the buyers induced by brand stories in association with the electronic unofficial.
Stories of this kind are more convincing owing to the fact that they include frequent description and dramatizations that are more compelling than assertion, since buyers in addition have the capacity to organize data in such firms (Escalas, 2004). Apart from that, stories that include stimulating details, experiences, climaxes/ evaluations and agendas of customer to customer and customer to brand communications within a specific environment are effectually retrieved from reminiscence that adds to the impactful power in the hands of the buyer produced brand stories. It was observed during a detailed analysis of social media channels and marketing activities that social systems tend to be very imperative for brand management. They assert that the social networking between the purchasers van effect the way brand messages are perceived and reached out by buyers and how consumers tend to respond to such messages and finally how the companies are supposed to sketch out their marking forethoughts (Bazarova, et al., 2013).

 

Chapter Three – Methodology

3.1 Research Philosophy

The research study was to adopt one out of two research philosophies. The first choice available was to employ the positivism philosophy. The philosophy of positivism is usually adopted for medical researches due to its ability to minimize error. It also claims that reality is separate from the researcher. The positivism theory essentially asserts that there is only one reality (Tharenou, et al., 2007). This approach was deemed unsuitable for the current study, as it aims at studying the shopping experience (reality) which cannot be separated from the human mind and behavior. Positivism also does not allow personal variables to interfere with the interpretation of the results.
The second choice for this research to employ was the interpretivism research philosophy. This philosophy was originally introduced to counter the claims of positivism. It was developed by social scientists to analyze the social behavior of the masses. Therefore, the primary assertion of theinterpretivism philosophy is the existence of multiple realities. For example, what may be true for one culture may not be applicable to another? This research also provides researchers with the convenience of using personal views and knowledge in the interpretation of results and data (Tharenou, et al., 2007). This philosophy was deemed more appropriate for the current study as it aims to study the reactions and behavior of humans in a given situation and environment. Other similar studies in the past have also been employing the same approach. The research study will use interpretivism as its research philosophy. Unlike positivism, interpretivism asserts the existence of multiple realities. Positivism is used in pure sciences, whereas interpretivism is used in social sciences. The research only aims at observing and describing an existing process. Interpretivism allows the researcher to use his or her own knowledge to interpret the data. Interpretivism allows multiple realities to co-exist as it believes that the reality is based on social phenomena. Majority of the article reviewed for the context of this research followed interpretivism. The nature of variables demands interpretivism to be used as research philosophy due to the vagueness inculcated in them

3.2 Research Approach

Two research approaches available to the current research were quantitative and qualitative approaches. The quantitative approach allows gathering of large amounts of data within a short or limited timeframe. Statistical data also helps derive in general, helps in collection of large amount data in a short period of time. Moreover, rigorous statistical data analysis can help draw conclusions. On the contrary, collection of qualitative data is time consuming and provides limited data, in a long period. One benefit of the qualitative method is its provision of insightful analysis, making it more appropriate for descriptive and exploratory studies. Qualitative approach allows in-depth analysis of a given research problem, but it is a time consuming process as it is very detail oriented. Most of the qualitative researches have limited sample size, which makes generalization of the results questionable. On the other hand, quantitative approach allows collection of a large sum of data in a short period of time, but it fails to provide in-depth analysis of a given problem.
The current research study employs the quantitative method. Although, the two primary variables emphasized in the study are brand image and word of mouth, both of which have a subjective nature, a quantitative approach was employed due to resource and time constrains. The LIKERT scale has been used in order to change the data from qualitative to quantitative data. The LIKERT scale helps add an element of subjectivity as respondents can provide rating according to different degrees of perception. (Sivakumar, et al., 2014). 

3.3 Research Instrument

Keeping view the research method, which is quantitative, a questionnaire was developed as a research tool for this study. Given the large sample size, other data collection tools such as interviews may not have been as effective and suitable due to time constraints and issues relating to validity and reliability. Questionnaires are considered more convenient for respondents as well as researchers as they save time and provide a large amount of data in one go. It also provides options for respondents to choose from (Pullman & Robson, 2007). The two selected variables were operationalized on the basis of small variables, and respondents were asked to give their opinion about them.

3.4 Research Sample

The sample size for this research study was 50 respondents. A sample size of 70 was selected originally, but 20 respondents were screened out, leaving behind 50 SMEs at small and large areas. Sample is SMEs of the European region. The questionnaire was distributed online via Google Drive. The questionnaire was designed on Google Drive, and its link was shared on Facebook pages of large and small enterprises.
 

3.5 Hypothesis & objectives

  • H1: WOM has a positive impact on brand image.
  • H0: WOM has no impact on brand image.
 
  • H1: WOM has a positive impact on sales.
  • H0: WOM has no impact on sales.
 
  • H1: Positive Brand Image is positively related to Sales.
  • H0: Positive Brand Image is not positively related to Sales.
 
  • H1: Sales are positively influenced by brand image & sales.
  • H0: Sales are not positively influenced by brand image & sales.
The aforementioned hypotheses were tested using correlational statistics via SPSS. The results are presented in the fifth chapter.

3.6 Research Analysis

Coding for the gathered data was done on SPSS Statistics. All questions were separately analyzed through frequency tables. In order to avoid bias, neutrality while reporting findings was ensured. To study different aspects of the relationship between the two variables, brand image and word of mouth, cross tabulation was run on selected questions. Correlational statistics were also calculated to test the relationship. Based on the second and third section of the questionnaire, new variables were also computed. Averages were calculated in order to develop the two new variables, and their relationship was studied through correlational statistics. The magnitude of the relationship was studied by running a correlation test and then developing a regression equation on SPSS. The results of the research were then compared to the previous studies, that is, the secondary research available on the subject. Cronbach’s alpha was employed to test the reliability of the data.

 

Chapter Four – Findings

Following tables have been generated via SPSS
Table 1: Your business belongs to which industry?
Your business belongs to which industry?
  Frequency Percent Valid Percent Cumulative Percent
Valid Professional Services 13 26.0 26.0 26.0
Trading 12 24.0 24.0 50.0
Manufacturing 11 22.0 22.0 72.0
Others 14 28.0 28.0 100.0
Total 50 100.0 100.0  
 

Figure 1: Your business belongs to which industry?
The results indicate that 26% of the respondents included in the survey were involved in the industry of professional services while approximately same proportion of people i.e. 24% belonged to the trading industry. Moreover, 22% of the sample was involved in the business of manufacturing whereas a greater proportion of 28% had businesses pertaining to industries other than the ones stated.
Table 2: Your sales turnover annual
Your sales turnover annual
  Frequency Percent Valid Percent Cumulative Percent
Valid €1-€100000 13 26.0 26.0 26.0
€100001-€200000 12 24.0 24.0 50.0
€200001-€300000 10 20.0 20.0 70.0
€300001-€500000 14 28.0 28.0 98.0
€500001-€1000000 1 2.0 2.0 100.0
Total 50 100.0 100.0  
 
 

Figure 2: Your sales turnover annual
When enquired about the yearly sales turnover experienced by each person in the survey, the turnovers of majority of the respondents i.e. 28% fell in the range of €3000001- €500000 while comparably, 26% of the respondents voted for  €1-€100000. In addition to that, 24% and 20% of the sample mentioned their turnovers to be in the range of €100001-€200000 and €200001-€300000, respectively. Only a 2% sample gained their turnover as high as €500001-€1000000.
Table 3: Your brand image in consumers mind is
Your brand image in consumers mind is
  Frequency Percent Valid Percent Cumulative Percent
Valid Deteriorating due to some issues 11 22.0 22.0 22.0
Somewhat Positive 8 16.0 16.0 38.0
Neutral 2 4.0 4.0 42.0
Positive 9 18.0 18.0 60.0
Highly Positive 20 40.0 40.0 100.0
Total 50 100.0 100.0  
 

Figure 3: Your brand image in consumers mind is
The data represents that nearly half proportion of the total number of respondents i.e. 40% were of the view that their brand image in consumer’s mind was highly positive whereas 16% found it positive to some extent. 22% believed that it was deteriorating due to some issues while 4% of the people perceived that the image that people bear in their mind regarding their brand was somewhat neutral.
Table 4: It matches your consumers’ personality
It matches your consumers’ personality
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 23 46.0 46.0 46.0
Disagree 1 2.0 2.0 48.0
Neutral 1 2.0 2.0 50.0
Agree 10 20.0 20.0 70.0
Strongly Agree 15 30.0 30.0 100.0
Total 50 100.0 100.0  
 

Figure 4: It matches your consumers’ personality
When asked whether or not, their brand image was consistent with their consumer’s personalities, 46% of the people strongly disagreed to the notion while on the contrary, 30% strongly agreed. An equal number of respondents i.e. 2% each, either simple defied the statement or were impartial about it. 20% seem to concede to the statement that brand image matched their consumer’s personalities.

 
Table 5: It promotes what you want to promote
It promotes what you want to promote
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 2 4.0 4.0 4.0
Disagree 14 28.0 28.0 32.0
Neutral 22 44.0 44.0 76.0
Strongly Agree 12 24.0 24.0 100.0
Total 50 100.0 100.0  
 

Figure 5: It promotes what you want to promote
The tabulated data implies that nearly half of the respondents held an impartial opinion towards he statement that whether their brand image promoted what they intended to promote. 28% disagreed while 24% strongly agreed that their brand image was in line with their objectives. A small proportion of 4% strongly disagreed.

 
Table 6: Overall, you are satisfied with the image of your brand
Overall, you are satisfied with the image of your brand
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 3 6.0 6.0 6.0
Disagree 11 22.0 22.0 28.0
Neutral 6 12.0 12.0 40.0
Agree 20 40.0 40.0 80.0
Strongly Agree 10 20.0 20.0 100.0
Total 50 100.0 100.0  
 

Figure 6: Overall, you are satisfied with the image of your brand
As manifested by the results, 40% of the people agreed that they were satisfied with their created brand image while 20% strongly agreed. On the contrary, 22% of the respondents were not satisfied with the brand perception and a small proportion of 6% strongly disagreed. Moreover, 12% of the sample had a neutral feedback.

 
Table 7: What actions do you take to spread positive WOM
What actions do you take to spread positive WOM
  Frequency Percent Valid Percent Cumulative Percent
Valid It is a waste of money 11 22.0 22.0 22.0
Do not consider it important 11 22.0 22.0 44.0
Medium Level 10 20.0 20.0 64.0
Aggressive 7 14.0 14.0 78.0
Very Aggressive 11 22.0 22.0 100.0
Total 50 100.0 100.0  
 

Figure 7: What actions do you take to spread positive WOM
When the people in the survey were enquired about what actions they employ in pursuit of spreading a positive word of mouth, 22% of them considered it a complete waste of money while another 22% thought WOD did not hold much importance in establishing brand image. However, another 22% of the respondents undertook very aggressive steps to spread a positive word of mouth while 20% limited themselves to medium level actions.
Table 8: You consider WOM part of marketing
You consider WOM part of marketing
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 12 24.0 24.0 24.0
Disagree 13 26.0 26.0 50.0
Agree 25 50.0 50.0 100.0
Total 50 100.0 100.0  
 

Figure 8: You consider WOM part of marketing
As indicated by the tabulated data, half of the respondents i.e. 50% considered WOM an integral part of marketing plan whereas 26% differed from this opinion. In addition to that, 26% of the sample was in strong disagreement with the statement.

 
Table 9: You use internet to promote WOM
You use internet to promote WOM
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 3 6.0 6.0 6.0
Disagree 11 22.0 22.0 28.0
Neutral 10 20.0 20.0 48.0
Agree 7 14.0 14.0 62.0
Strongly Agree 19 38.0 38.0 100.0
Total 50 100.0 100.0  
 

Figure 9: You use internet to promote WOM
The gathered data shows that a major proportion of 38% strongly preferred the use of Internet as a medium to spread word of mouth while 14% agreed to its usability. 20% of the people were neutral towards the statement. Moreover, 22% didn’t consider Internet usage as an option to promote WOM.

 
Table 10: You believe that quality products result into WOM
You believe that quality products result into WOM
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 13 26.0 26.0 26.0
Neutral 12 24.0 24.0 50.0
Agree 11 22.0 22.0 72.0
Strongly Agree 14 28.0 28.0 100.0
Total 50 100.0 100.0  
 

Figure 10: You believe that quality products result into WOM
When asked if the respondents believed that their product quality directly determined the WOM, 26% of the people strongly disagreed while 24% had an impartial opinion. 28% of the sample strongly believed in the correlation between product quality and WIOM while 22% simply agreed to the statement.

 
Table 11: No separate effort required except quality
No separate effort required except quality
  Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 2 4.0 4.0 4.0
Disagree 12 24.0 24.0 28.0
Neutral 12 24.0 24.0 52.0
Agree 10 20.0 20.0 72.0
Strongly Agree 14 28.0 28.0 100.0
Total 50 100.0 100.0  
 

Figure 11: No separate effort required except quality
As represented by the results, 28% strongly felt that product quality was more than enough for a positive WOM and no extra efforts were required whereas 20% simply agreed. On the contrary, 24% disagreed and were of the opinion that other efforts were also needed apart from just product quality whereas 4% strongly disagreed to the notion. 24% of the respondents were neutral.

 

Chapter Four – Analysis

This chapter is divided into three main parts, according to hypothesis that were to be tested. SPPS was used for calculations of statistics.

H1: WOM has a positive impact on brand image.

H1: WOM has a positive impact on brand image.
H0: WOM has no impact on brand image.
 
Table 12: Hypothesis 1
Correlations
  WOM_AVG Brand_Image_AVG
WOM_AVG Pearson Correlation 1 .945**
Sig. (2-tailed)   .000
N 50 50
Brand_Image_AVG Pearson Correlation .945** 1
Sig. (2-tailed) .000  
N 50 50
**. Correlation is significant at the 0.01 level (2-tailed).
 
Pearson Correlation of 0.945 shows a very strong and positive relationship between Word-of-Mouth and brand image. The p-value of 0.000 shows the relationship is significant. In order to understand the results of this hypothesis, it is important to understand the nature of questions that were asked. A company whose customers spread a positive WOM across other non-users ensures that the general masses have a positive brand image. In addition to that, companies should learn to admit their mistakes due to losing authority. Hence, Hypothesis is accepted.

Figure 12: Hypothesis
The above shown chart shows that negative WOM has the highest negative brand image along with some neutral patterns of brand image. In the second column set, neutral WOM has neutral and positive brand image of almost equal proportions. In the last column set, positive WOM has high proportions of neutral and positive brand image.
The brand stories spread by customers are derived from their past brand experiences as well as their expectations in the future. These experiences can either be pleasing like admiring the firm or spreading the word of mouth or can be discouraging like customer complaints. Stories produced by customers are available both online and offline. An indication to identify loyal customers is that they make an effort to share positive brand knowledge. WOM provides inspiration and has the ability to change a buyer’s viewpoint and attitude. Loyal consumers provide free marketing and earnings for a brand. As compared to products, services are difficult to evaluate and therefore higher in risk. Therefore, “service contexts result in high menace- alertness with their insubstantiality, variability, fragility and indivisibility” (Herr, et al., 2001).

H1: WOM has positive impact on sales.

H1: WOM has positive impact on sales.
H0: WOM has no impact on sales.
 
Table 13: Hypothesis 2
Correlations
  WOM_AVG Your sales turnover annual
WOM_AVG Pearson Correlation 1 .855**
Sig. (2-tailed)   .000
N 50 50
Your sales turnover annual Pearson Correlation .855** 1
Sig. (2-tailed) .000  
N 50 50
**. Correlation is significant at the 0.01 level (2-tailed).
 
Pearson Correlation of 0.855 shows a very strong and positive relationship between Word-of-Mouth and sales. The p-value of 0.000 shows the relationship is significant. In order to understand the results of this hypothesis, it is important to understand the nature of questions that were asked. A company whose customers spread a positive WOM across other non-users ensures that the general masses have high volume of sales. Hence second hypothesis is accepted.

Figure 13: Hypothesis 2
The above shown figure shows that companies with lowest sales turnover have high negative WOM. Same is the case with second lowest sales category. However, in the third sales category, the trend of negative WOM converts into a positive one. In the second highest sales category, WOM is the highest. The last and the highest sales category has only positive WOM, but of low level. Godes & Mayzlin (2004) found that distribution of interactive communications among online groups was strongly correlated. Dellarocas & Chrysanthos (2003) believe that the best indicator to forecast profits is the average statistical ranking of a buyer’s views. On the other hand, Duan & Whinston (2005) questioned this notion with reference to the impact of movie reviews on movie ticket prices. Clemons, et al. (2012) found an increase in sales caused by positive responses and word of mouth. It was also found that suggestions regarding products have shown major influence on the relationship between product reviews and sales of Amazon.

 

H1: Positive Brand Image is positively related to Sales.

H1: Positive Brand Image is positively related to Sales.
H0: Positive Brand Image is not positively related to Sales.
 
Table 14: Hypothesis 3
Correlations
  Your sales turnover annual Brand_Image_AVG
Your sales turnover annual Pearson Correlation 1 .833**
Sig. (2-tailed)   .000
N 50 50
Brand_Image_AVG Pearson Correlation .833** 1
Sig. (2-tailed) .000  
N 50 50
**. Correlation is significant at the 0.01 level (2-tailed).
 
Pearson Correlation of 0.833 shows a very strong and positive relationship between Sales and brand image. The p-value of 0.000 shows the relationship is significant. A company whose customers have a positive Brand Image tends to have higher sales. Hence, Hypothesis 3 is accepted.

Figure 14: Hypothesis 3
The trend seen in the above chart shows a similarity with the Hypothesis 2 chart. However, as the sales revenue increases, the company gets a positive brand image. However, higher sales do not translate into positive brand image. But, positive brand image does translate into sales. A brand is only an array of cognitive ideas going on in a customer’s mind uncontrollably. Likewise, brand identity is a product of already laid down specifications, advantages and ideas induced in customer’s mind through the use of marketing techniques. Story-telling regarding brands is one of the most practiced strategies. However, this entire strategy assumes that all exposed people grasp these stories just like the targeted customer base of the firm. Therefore, it can be confirmed that the brand image is viewed in the way the firm depicts it hence correlating the brand image and identity (Chevalier & Dina, 2006). Customers can make buying decisions based on the manifested brand identity. It plays the role of a thought-processor helping customers to analyse their buying options thereby minimizing the expected risk and saving time. Companies vigorously work to establish brands that are their most valuable assets.

H1: Sales are positively influenced by brand image & sales.

H1: Sales are positively influenced by brand image & sales.
H0: Sales are not positively influenced by brand image & sales.
 
Table 15: Model Summary
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .858 .737 .726 .636
a Predictors: (Constant), Brand_Image_AVG, WOM_AVG
 
Table 16: ANOVA
ANOVAa
Model   Sum of Squares df Mean Square F
1
 
Regression 53.286 2 26.643 65.788 .000
Residual 19.034 47 .405    
Total 72.320 49      
a Dependent Variable: Your sales turnover annual
b Predictors: (Constant), Brand_Image_AVG, WOM_AVG
 
 
Table 17: Coefficients
Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) -.298 .268   -1.112 .272
WOM_AVG .641 .233 .625 2.744 .009
Brand_Image_AVG .254 .239 .243 1.065 .292
a. Dependent Variable: Your sales turnover annual
 
 

 
The Adjusted R Square of 0.726 shows the goodness of fit of the developed model. This means that the developed model is consistent and can be applicable to other data set, as well. The non-standardized coefficients show that only WOM positively influences sales and brand image does not. The reason for this finding could be that Brand Image has a lasting psychological effect, whereas WOM is generally spread when one person is looking to buy a product and asks about the desired brand. This makes translation of positive WOM into sales in a quick manner. On the other hand, WOM is influenced by brand image as a referrer would only refer the product if he or she has a positive brand image of the product. Hence, hypothesis 4 is rejected.

 

Chapter Five – Conclusion

 
This research studies the impact of word-of-mouth on the success of a business. A marketing study, this research is based on the fourth of the 4Ps of marketing, which is promotion. Word of mouth is a promotional tool, which unlike most marketing tools, is not in direct control of a business. In this research the contribution of word of mouth in the short run and long run success of a business, has been studied.
The main research question that this research study aimed to answer was: What is the role of WOM in making European SMEs successful? The research question helped give the study an overall direction, while at the same time, indicating its limitations. The main objective was to study the impact of positive or negative word-of-mouth on the sales and overall brand image of businesses. Other goals of the study included analysis of how WOM functions in context of consumers’ cognitive process, to ascertain the scope of “success” for European SMEs, to study the dynamics of brand image, the impact of WOM on brand image, sales and on combined success factors (sales and brand image).
Vast literature on the subject has been studied in depth. The literature review explains main, contextual theories on brand image and WOM and goes on to discuss the vacuum in literature that this study was aimed at filling. The research methodology elaborates on the research design, sample size and sampling technique. It also talks about the different research philosophies and approaches and presents the rational for choosing a particular philosophy relevant to the current study. The variables and the metrics employed to measure them have also been discussed in detail. The chapter on findings explains the results that were gathered using data collection tools. It then goes on to discuss the findings in context of the objectives set for the study. The next chapter presents in depth analysis of the results and findings. Results have also been studied in context of previous researches and theories discussed in the literature review.
As word of mouth takes place between two individuals, not part of the business, it is free of any monetary goals. It is specifically related to a brand, product or service. Experts say that WOM points towards the probability of a customer to suggest a product or service to others.  It may imply a discussion between existing buyers (individuals and groups) and potential buyers. It is especially important when customers are faced with a problem or are making evaluations regarding risky buying decisions. It is a pre-purchase input to persuade buyers and acts as an output, post-purchase.
Brand formation requires great effort and persistent hard work as brands are considered invaluable assets for companies. Managers exert immense amounts of effort to produce powerful brands through brand stories that allow consumers to relate to the brand and remember it clearly. Brand stories often consist of a plot; characters are often based on a certain storyline, characters, climax and a general effect that creates understanding of the brand in customers’ mind, leading to greater brand recall and retention. Impactful narration causes a brand story to produce a compelling effect. That is, it takes the consumer through the story For example, Dove’s ‘Real Beauty’ and Ben & Jerry’s website illustrating its background and history are both campaigns related to brand stories.
The two variables in focus, brand image and word of mouth, are both subjective in nature. However, a quantitative approach was employed for this study due to constraints regarding time and resources. To change the nature of data from qualitative to quantitative, a LIKERT scale was used in questionnaires. The LIKERT scale is easy for coding and statistics, while it also maintaining an element of subjectivity, as it takes into account different levels of an opinion or phenomenon.
A sample size of 70 was selected for this study. However, initial screening led to screening out of 20 respondents. Hence, the final sample size of the study was 50 respondents. These were small and medium enterprises (SMEs) present in both small and large localities, in Europe. The questionnaire was developed and distributed on Google Drive and its link was also placed on these enterprises in order to get access to the relevant audience.
The table below summarizes statistical results of the hypotheses:
H1: WOM has a positive impact on brand image.
H0: WOM has no impact on brand image.
Correlation: 0.945
P-Value: 0.000
H1: WOM has positive impact on sales.
H0: WOM has no impact on sales.
Correlation: 0.855
P-Value: 0.000
H1: Positive Brand Image is positively related to Sales.
H0: Positive Brand Image is not positively related to Sales.
Correlation: 0.833
P-Value: 0.000
H1: Sales are positively influenced by brand image & WOM.
H0: Sales are not positively influenced by brand image & WOM.
Adjusted R Square: 0.726
Only WOM was a significant variable
 
All hypotheses, except the last one were accepted. The objectives of the research were met and it proved to be conclusive, enabling a thorough understanding of the relationship between the two variables.

Evaluation

Word of mouth, even though, not always marketing tool in control of the company, plays a major role in the creation of a brand, its image and positioning. Positive word of mouth creates positive attitudes and feelings towards a brand, reflecting upon its satisfactory products and customer service hence playing a role in its image building. It is often considered to have greater impact as compared to traditional marketing media, as it entails an element of trust and familiarity between individuals. Recommendations from friends, family and peers which are deemed unbiased and truthful are understandably much more influential as compared to website or on-line review. Apart from bringing in new potential customers, it also reinforces loyalty amongst existing customers.  This, added with the benefit of it being free of cost is what makes positive word of mouth extremely attractive to marketers.

 

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Appendix A – Questionnaire

Questionnaire
It is assured that your information will be kept confidential. It will not be used for any commercial use; solely for academic purposes.
  1. Your business belongs to which industry?
    1. Professional Services
    2. Trading
    3. Manufacturing
    4. Others
  2. Your sales turnover annual:
    1. €1-€100000
    2. €100001-€200000
    3. €200001-€300000
    4. €300001-€500000
    5. €500001-€1000000
    6. €10000000+
  3. Your brand image in consumers mind is:
    1. Highly Positive
    2. Positive
    3. Neutral
    4. Somewhat Positive
    5. Deteriorating due to some issues
  4. Mark following statements about your brand image:
  Strongly Agree
  •  
  •  
  •  
Strongly Disagree
It matches your consumers’ personality          
It promotes what you want to promote          
Overall, you are satisfied with the image of your brand          
 
  1. What actions do you take to spread positive WOM:
    1. Very Aggressive
    2. Aggressive
    3. Medium Level
    4. Do not consider it important
    5. It is a waste of money
  2. Kindly mark following statements about WOM in your company:
  Strongly Agree
  •  
  •  
  •  
Strongly Disagree
You consider WOM part of marketing          
You use internet to promote WOM          
You believe that quality products result into WOM          
No separate effort required except quality          
 
Thank You.