An Empirical Study of Word-of-Mouth Generation and Consumption

Word-of-mouth (WOM) plays an increasingly important role today in shaping consumers' attitudes and buying behaviors. Prior work in marketing has mainly focused on the aggregate impact of WOM on product sales as well as the generation of WOM. Very little attention has been paid to the consumption or usage of WOM. In this paper, utilizing a unique dataset which collects information from the automobile category on whether a consumer generates WOM to others and uses WOM for making purchase decisions, we build a discrete-choice model to study consumer WOM generation and WOM consumption decisions simultaneously and empirically answer questions which have not been explored previously. We are particularly interested in studying the key drivers of WOM generation/consumption and the synergy effect between the two WOM-related activities. We apply the proposed model to survey data collected on the automobile category. We find that there is a strong synergy between WOM generation and WOM consumption. While the majority of consumers view WOM generation and WOM consumption as complementary to each other (i.e. participation in one activity encourages participation in the other), some consumers tend to perceive the two activities as competing with each other (i.e. participation in one activity reduces participation in the other). We also find that consumer product experience and media exposure are positively correlated with their propensity to generate WOM. However, their effect on WOM consumption is mixed. Consumer product experience and media exposure can positively or negatively explain consumer propensity to consume WOM. Our empirical analysis also provides evidence of unobserved heterogeneity in the way consumer WOM activities are related to consumer product experience. Overall, these findings lead to important managerial implications on targeting for effective use of WOM as a marketing tool