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Quantifying the Ripple: Word-of-Mouth and Advertising Effectiveness

Published online by Cambridge University Press:  31 January 2005

JOHN E. HOGAN ,
KATHERINE N. LEMON  and
BARAK LIBAI
JOHN E. HOGAN
Affiliation:
Strategic Pricing Groupjhogan@spgconsulting.com
KATHERINE N. LEMON
Affiliation:
Carroll School of Management, Boston Collegekatherine.lemon@bc.edu
BARAK LIBAI
Affiliation:
Faculty of Management, Tel-Aviv Universitylibai@post.tau.ac.il
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Abstract

In this article the authors demonstrate how a customer lifetime value approach can provide a better assessment of advertising effectiveness that takes into account postpurchase behaviors such as word-of-mouth. Although for many advertisers word-of-mouth is viewed as an alternative to advertising, the authors show that it is possible to quantify the way in which word-of-mouth often complements and extends the effects of advertising. The authors provide a simple approach to the measurement of postpurchase word-of-mouth sales effects and demonstrate how firms may be underestimating advertising effectiveness by ignoring such effects. Their approach illustrates how customer lifetime value models can provide an important tool to assess the long-term effects of advertising campaigns.

Type
Research Article
Information
Journal of Advertising Research , Volume 44 , Issue 3 , September 2004 , pp. 271 - 280
Copyright
© Copyright © 1960-2004, The ARF

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