Viral Marketing - A crucial new dimension in 21st century marketing?

2

contents

  2  

  introduction  

  4  

1  fundamentals of viral marketing  

  8  

1.1  Origins  8

1.2  Characteristics and definitions  9

1.3  Redefining viral marketing  10

1.4  Types of viral marketing  12

1.4.1  Frictionless / Low-integration  12

1.4.2  Active / High-integration  13

1.5  Objectives  14

2  key elements of communication  

  17  

2.1  Word of mouth  17

2.1.1  Strong and weak ties  19

2.1.2  Communication flow in social networks  21

2.1.3  Opinion leadership  23

2.2  Word of mouse  25

2.3  Cross-cluster communication  26

3  critical issues in viral marketing  

  28  

3.1  Research and targeting  28

3.1.1  The message  29

3.1.2  The first-tier recipients  30

3.2  The viral element  32

3

3.2.1 Benefits 34

3.2.2 Viral hosts 34 3.2.2.1 35 E-mail

3.2.3 Viral incentives 36 3.2.3.1 36 Laughing

3.3 Forwarding 41 3.4 Speed and simplicity 42 3.5 Methods of measuring success 43 3.6 Summary: critical success factors 44

4 viral marketing in context 46 4.1 Opportunities for integration 46 4.1.1 The clutter problem 46

4.1.2 The permission approach 47

4.1.3 Viral marketing and permission marketing 49 4.1.4 Further integration 50 4.2 Suitability 50 4.3 Threats 52 4.3.1 Infected attachments 52 4.3.2 Spamming 53 4.3.3 Control 55 4.3.4 Viral clutter 56 4.3.5 Privacy 57

conclusion 59

bibliography 62

4

introduction

“Markets today are changing fast. Price-sensitive customers, new competitors, new distribution channels, new communication channels, the Internet, wireless commerce, globalization, deregulation, privatization… the list goes on. And it is not only markets that are changing, but the technologies that support them: e-commerce, e-mail, mobile phones, fax machines, sales and marketing automation, cable TV, videoconferencing. It is imperative that companies think through the revolutionary impact of these new technologies.” 1

The above quotation illustrates two essential considerations for marketers operating in the 21 ^st century. Firstly, it emphasises that in today’s marketing world the way companies communicate with their customers as well as how customers interact with each other have changed significantly. Secondly, it points to a key implication of these changes - the necessity for companies to find innovative ways of embracing these new technologies and of dealing with the changes in a manner that supports their corporate objectives.

These revolutionary changes are due first and foremost to the advent of the Internet. Following the initial stages of its development, in which it generated exuberant excitement and exaggerated expectations among companies and consumers alike, it has evolved into an important distribution and communication channel for a large number of companies. Great significance now attaches to the Internet as an integral part of many companies’ promotional activities. At the same time consumers have become savvier in the use of the Internet; they appreciate that having more information at their fingertips puts them in a significantly better purchasing position: “Buyers today can compare prices and product attributes in a matter of seconds. They are only a click away from comparing competitors’ prices and can even name the price they want to pay for a hotel room, airline ticket or a mortgage and see whether any willing suppliers respond. Furthermore they can enter a chat room about an area of common interest and exchange information and opinions.” 2

1 Kotler; Jain; Maesincee, 2002, p.ix

2 Kotler; Jain; Maesincee, 2002, p.16

5

Companies neglecting or underestimating the implications of this changing marketing environment, especially in the area of customer communication will almost certainly experience disadvantages when vying for customers’ attention. Also, companies relying solely on established and conventional means of advertising will in all probability lose those customers who have moved on to use predominantly new communication channels. The reason they have done so may well be that “these (conventional) advertisements assume a level of naiveté on the part of the viewer or reader that no longer exists. Today’s consumer is jaded and fed up with overt distortions and onesize-fits-all attempts to influence.” 3

Finally, another root cause of the changing marketing environment is a phenomenon most commonly referred to as clutter. In his book Permission Marketing, Seth Godin claims that consumers today are exposed up to an overwhelming 3,000 marketing messages a day. ⁴ The attempts made by some marketers to deal with this phenomenon are astonishing: “The ironic thing is that marketers have responded to this problem with the single worst cure possible. To deal with the clutter and the diminished effectiveness of interruption marketing ⁵ , they are interrupting us even more.” 6

Nonetheless, some marketers are attempting to counteract this trend by exploring a number of new and alternative marketing techniques. Amongst them are innovative approaches to customer communication, such as permission marketing ⁷ , guerrilla marketing ⁸ and viral marketing. The latter has experienced tremendous growth since the remarkable success of free web-based e-mail service, Hotmail. Hotmail went from 0 to 12 million subscribers in just 18 months, largely because it included an advertisement link for the service at the bottom of every e-mail. Steve Jurvetson, senior

3 Salzman; Matathia; O’Reilly, 2003, p. 1

4 Godin, 2002, p. 26

5 According to Godin, interruption marketing refers to any marketing activity that involves exposing customers to company messages and information they did not explicitly ask for and which therefore ‘interrupt’ other activities. TV and print advertising are usually cited as examples of interruption marketing.

6 Godin, 2002, p. 27

7 Permission marketing is explained in detail and evaluated in section 4 .1.1

8 Guerrilla marketing primarily focuses on the use of uncommon advertising techniques such as placing advertisements in unusual places. One key element thereby is meeting marketing objectives with minimal budgets.

6

partner at the investment firm of Draper Fisher Jurvetson which financed the start-up Hotmail, says that “almost 80% of the business plans we at DFJ see today have the word ‘viral’ in them.” 9

Due to the incredible growth of Hotmail and of other high-profile examples, such as the instant messaging software, ICQ ¹⁰ , and the free e-card provider, Blue Mountain Art ¹¹ , there are some who believe that viral marketing could function as a panacea to counteract the difficulties marketers are experiencing in targeting consumers with traditional advertising. The following quotation illustrates this point of view: “Think of a virus as the ultimate marketing program. When it comes to getting a message out with little time, minimal budgets, and maximum effect, nothing on earth beats a virus. Every marketer aims to have a dramatic impact on thinking and behaviour in a target market; every successful virus does exactly that.” ¹² Furthermore, viral marketing currently seems to be eliciting more discussion among professionals and greater excitement among practitioners than any of the other new communication techniques that were mentioned.

With that in mind, the purpose of this paper is to critically evaluate both the opportunities and the pitfalls that viral marketing presents to marketers in the 21 ^st century. In an environment with new communication technologies, shifting marketing emphasis and changing consumer behaviour the key questions are:

• What are the unique strengths of viral marketing?

• To what extent does it offer opportunities for the companies that employ it to outdo companies using more traditional means of advertising?

• What are the threats that might occur in its application?

9 Sansoni, 1999, p. 118

10 ICQ ( www.icq.com ) is an instant messaging service that enables its users to see which of their friends are online and to send them messages in real time. Another popular instant messaging program is Microsoft’s MSN ( www.msn.com ).

11 Blue Mountain Art enables its users to send customised electronic cards to other users for a variety of different purposes. Every outgoing e-card includes the option of instantly sending an e-card back to the original sender ( www.bluemountain.com ).

12 Rayport, 1997, p. 68

7

Several factors that directly and indirectly influence the implementation of viral marketing will be examined below. After an outline of the fundamentals of viral marketing and a look at the way people communicate with each other, a detailed analysis of critical issues in the design of viral marketing campaigns will be presented. This will be followed by an evaluation of related subjects and possible threats. Finally, an attempt will be made to give a brief answer to the question of whether viral marketing constitutes a crucial new dimension in 21 ^st century marketing.

8

1 fundamentals of viral marketing

1.1 Origins

The ‘birth’ of viral marketing goes back to the year 1997 and the introduction of the free e-mail service, Hotmail, by the investment firm of Draper Fisher and Jurvetson. Hotmail had been created by Sabeer Bhatia and Jack Smith the year previously and it offered a terrific new product: free, web-based e-mail. Looking for an affordable way to promote the product, Tim Draper came up with a simple yet compelling idea. In a meeting with Bhatia and Smith, shortly before the launch of Hotmail, he suggested that an advertising message should be attached to every outbound e-mail saying “Get Your Private, Free Email from Hotmail at http://www.hotmail.com.” 13

In an article explaining the amazing growth of Hotmail, Draper and Jurvetson come up with some startling statistics: “In its first 1.5 years, Hotmail signed up over 12 million subscribers. Yet, from company launch to 12 million users Hotmail spent less than $ 500,000 on marketing, advertising and promotion. Hotmail grew a subscriber base more rapidly than any company in the history of the world… faster than any new online, Internet, or print publication ever.” 14

Three things were pivotal to this tremendous success. Firstly, whenever a new subscriber sends out an e-mail he in effect becomes a company salesperson, because the recipient reads the bottom tag-line that is attached to every single e-mail. Secondly, the fact that the e-mail has arrived proves to the recipient that the service works, that other people are using it as well and moreover that it comes at no cost. The third and probably most important explanation is that the e-mail comes from a known source - a friend, acquaintance, family member or work colleague. A trusted source that directly yet involuntarily refers the service to many other people who, when using the service, recommend it in turn to their personal networks and so on. As a result viral marketing was born.

13 Jurvetson; Draper, 1998, www.dfj.com

14 ibid.

9

1.2 Characteristics and definitions

Several characteristics of viral marketing can be derived from the critical factors that paved the way for Hotmail’s success. First and foremost, it is readily apparent that viral marketing is closely connected to traditional wordof-mouth referrals. The innovation, however, is that the dissemination of information is carried out predominantly via e-mail and the Internet and not face to face. Due to the incredible speed and the number of people who can theoretically be reached by viral marketing it has sometimes been referred to as “word-of-mouth marketing on steroids.” 15

Furthermore, the product itself was genuinely new and so useful to its recipients that they felt compelled to forward it to their friends and peers. Not only does this illustrate the correctness of the long-standing marketing adage of ‘content is king’, but people also had a genuine reason to forward the message, as they would profit from a growing user base themselves. However, not every product is based on features that enable consumers to profit automatically from a growing base of users. Consequently, a fundamental characteristic of viral marketing is that it offers consumers incentives which encourage them to voluntarily spread a message within their personal social network.

Since the term was first used in 1997, several definitions of viral marketing have been published. The emphases of these definitions are commonly on either:

• its compelling content (“Viral marketing means creating messages that contain concepts within them that are absorbed by the people that come into contact with the messages. And making these messages compelling enough so that people pass them on.” ¹⁶ ) or

• the incentives offered to the recipients to pass on the message (“The Internet version of traditional sampling and approaches to leverage, known as viral marketing, is an innovative way of promoting products and services. It often offers free products to attract prospective customers, leading to trial, loyalty, and word-of-mouth ‘buzz’ ” ¹⁷ ) or

15 Philippi, 2004, www.zeromillion.com

16 Graham, 2004, www.clickz.com

17 Wind; Wind; Mahajan, 2001, p.15

10

• its exponential growth potential (“What everybody means by viral marketing is that it’s sort of this explosion that you start with one person and they will tell people and pass it on.” ¹⁸ ).

There are, however, a few definitions that ably embrace most of these essential characteristics. One comes from Richard Perry and Andrew Whitaker. They define viral marketing as “the voluntary spread of an electronic message from one consumer to one or many others, creating exponential and selfperpetuating growth in its exposure.” ¹⁹ This means that customers take the function of intermediaries, whereas the supplying company only contacts the first few adopters. “The analogy of viruses lies within the exponential diffusion of information about products and also the products themselves that the ‘carriers’ email to numerous new addresses which again will be ‘contaminated’.” 20

1.3 Redefining viral marketing

During the research for this paper it became apparent that some of viral marketing’s characteristics and definitions and their derived objectives are based on the features of the first few successful viral campaigns. However, it is extremely difficult to assign these derived characteristics to a broader and more general level of viral marketing that is applicable to the majority of companies. This difficulty stems from the fact that the initial successful examples combined some unique features that are impossible for most companies to imitate. This is underlined by the fact that “literature dealing with viral marketing is mostly reduced to relating success stories; definitions and backgrounds are hardly focused.” 21

For companies like Hotmail, the message, the product and therefore the viral element are one and the same thing. Internet-only services “such as e-mail, web-hosted address books, calendars, list servers, news group readers, greeting

18 Rasmusson, 2000, p.18

19 Perry and Whitaker, 2002, p. 6

20 Helm, 2000, p.158

21 Helm, 2000, p.158

11

card services, and so on” ²² do not have to add a compelling incentive to get their ‘message’ passed on because the service and the message are identical. Consumers directly benefit from using the service because the larger the user base grows, the more valuable the service becomes for its participants. “Individuals propagate the marketing message automatically because ‘a viral component is built into its DNA ’ , or imbedded in the use of the product, spreading the marketing message when they use the service to communicate with their friends and family.” 23

However, in the overall market environment only a handful of companies and products lend themselves to this method of viral marketing. For the most part they are software products, communication products and services that can essentially be used on the Internet only. A far more important issue, therefore, is whether viral marketing is applicable to the majority of ‘more traditional’ companies. It would be false to assume that these companies should aim at replicating the initial successes of Hotmail and Co. That would appear to be virtually impossible.

Consequently, a more appropriate definition of viral marketing is required. While the majority of companies offer products or services that can be advertised or supported with the help of e-mail and the Internet, they are not related per se to the Internet. Accordingly, in order to encourage people to spread the word about these companies online, some incentive must be provided that suits those peoples’ needs. They must be ‘convinced’ to intentionally pass on the message because they directly benefit from the incentive offered. Hence the approaches employed by traditional companies using viral marketing will differ in emphasis from Internet-only companies. The targeting of the first recipients and the creation of a viral incentive become significantly more important. Therefore, a more suitable definition of viral marketing is needed that takes these issues into account. The following definition might be more appropriate:

22 Jurvetson; Draper, 1998

23 Thevenot; Watier, 2004, www.sovereignmusic.com

12

Viral marketing is a marketing technique that aims to exploit the network effects on the Internet by offering a selected target audience an incentive relevant to their needs that encourages them to voluntarily pass on an electronic message to peers with similar interests, thereby generating growing exposure of the message.

1.4 Types of viral marketing

Viral marketing can be classified according to the differing degree of activity that is required from the customer in passing on the ‘virus’. Zien ²⁴ , for example, suggests the use of the terms ‘frictionless’ and ‘active’ viral marketing to distinguish between the varying degrees of customer integration. Others, like Helm ²⁵ , refer to ‘active’ as low-integration and ‘frictionless’ as highintegration viral marketing. However, as both classifications broadly describe similar characteristics of the two types of viral marketing, they are grouped and explained together in the following paragraphs.

1.4.1 Frictionless / Low-integration

In frictionless or low-integration viral marketing the lack of friction results from the fact that there is no effort involved for the consumer in forwarding a message, because this is often done simply by using the service. As with Hotmail or Blue Mountain Art greeting cards, e-mailing a friend or sending an e-card means that the word is passed on to recipients while the service is being used. The first viral campaigns mentioned above are characteristic of this type of viral marketing. Most Internet-only products and services, where the viral message and product or service are identical, can be assigned to this type of viral marketing. No incentive is needed to motivate users to pass on the message and so the level of integration between service and user is relatively low. Similar examples of low-integration viral marketing are ‘send this story to a friend’ buttons on news websites, such as Spiegel Online in Germany, where the level of activity required from the user is about as much

24 Zien, 2004, http://internet.about.com

25 cf. Helm, 2000, p.159

13

as in forwarding an e-mail. Although a conscious effort has to be made to forward the message, such viral initiatives are not typical of or applicable to most companies.

1.4.2 Active / High-integration

In active or high-integration viral marketing, companies need consumers to become more proactively involved in spreading a message and acquiring new users. There are two reasons for this. Either, as in the case of the instant messaging service, ICQ, people benefit directly from a growing user base and the service requires downloading software from a website. Or consumers become actively involved in passing on messages because they have been ‘convinced’ to do so by an incentive offered by the company that serves a particular purpose. This incentive can range from free giveaways, samples of new products, valuable information, any kind of entertainment, revenue participation or direct monetary offers. The crucial aspect here is the provision of an incentive that is truly relevant to the recipients.

This second form of high-integration viral marketing is applicable to most companies aiming to include viral marketing as part of their overall marketing mix. The following sections, which deal with key considerations, threats and opportunities in the use of viral marketing, therefore focus predominantly on this form of viral marketing.

Both frictionless and active viral marketing are closely associated with wordof-mouth marketing as they need the user to get involved with the message and pass it on, either as part of the service itself or through incentives offered by the company. This is illustrated in the following diagram.

14

Illustration 1

cf. Schmidt; Schögel, 2002, p. 430

It is immediately obvious that there is a ‘catch’ to viral marketing from the viewpoint of marketers. Viral marketing aims at using the customer as a sales channel, letting him spread the message to a broad audience. However, the more actively customers are involved and the more this marketing tool approximates to traditional word-of-mouth marketing, the more control companies lose over message and content. The loss of control over the message is one critical aspect of viral marketing. Therefore marketers have to seriously consider the implications of this lack of control when designing viral campaigns.

1.5 Objectives

Starting from the traditional marketing mix (price, place, promotion, people and distribution) viral marketing is apparently neither concerned with pricing decisions nor does it deal with issues about the how and when of product availability. As a result it is part of a company’s promotional activities. Dibb, Simkin, Pride and Ferrell define promotion as “communication with individuals, groups or organisations in order to facilitate exchanges by informing and persuading audiences to accept a company’s products.” ²⁶ However, they also

26 Dibb; Simkin; Pride; Ferrell, 2001, p. 454