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

Inhaltsverzeichnis

introduction

1 fundamentals of viral marketing
1.1 Origins
1.2 Characteristics and definitions
1.3 Redefining viral marketing
1.4 Types of viral marketing
1.4.1 Frictionless / Low-integration
1.4.2 Active / High-integration
1.5 Objectives

2 key elements of communication
2.1 Word of mouth
2.1.1 Strong and weak ties
2.1.2 Communication flow in social networks
2.1.3 Opinion leadership
2.2 Word of mouse
2.3 Cross-cluster communication

3 critical issues in viral marketing
3.1 Research and targeting
3.1.1 The message
3.1.2 The first-tier recipients
3.2 The viral element
3.2.1 Benefits
3.2.2 Viral hosts
3.2.2.1 E-mail
3.2.2.2 Website
3.2.2.3 Mobile phone and PDA
3.2.3 Viral incentives
3.2.3.1 Laughing
3.2.3.2 Greeting
3.2.3.3 Playing
3.2.3.4 Thrilling
3.2.3.5 Rewarding
3.3 Forwarding
3.4 Speed and simplicity
3.5 Methods of measuring success
3.6 Summary: critical success factors

4 viral marketing in context
4.1 Opportunities for integration
4.1.1 The clutter problem
4.1.2 The permission approach
4.1.3 Viral marketing and permission marketing
4.1.4 Further integration
4.2 Suitability
4.3 Threats
4.3.1 Infected attachments
4.3.2 Spamming
4.3.3 Control
4.3.4 Viral clutter
4.3.5 Privacy

conclusion

bibliography

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 21st 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

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 one- size-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 marketing⁵, 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 marketing⁷, guerrilla marketing⁸ 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 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, ICQ¹⁰, and the free e-card provider, Blue Mountain Art¹¹, 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 21st 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?

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 21st century marketing.

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.

1.2 Characteristics and definitions

Furthermore, the 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 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
- 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 self- perpetuating 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 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:

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’. Zien²⁴, for example, suggests the use of the terms ‘frictionless’ and ‘active’ viral marketing to distinguish between the varying degrees of customer integration. Others, like Helm²⁵, 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 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.

Illustration 1

illustration not visible in this excerpt

cf. Schmidt; Schögel, 2002, p.430

It is immediately obvious that there is a ‘catch’ to viral marketing from the view- point of marketers. Viral marketing aims at using the customer as a sales chan- nel, 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 emphasise that “marketers do not promote simply to inform, educate and entertain; one long run purpose of promotion is to influence and encourage buyers to accept or adopt goods, services and ideas.”²⁷

Marketers can use various tools to persuade consumers and inform them about a company’s products and services. These include advertising, public relations and publicity, sponsorship, personal selling, sales promotion, direct mail and recently also the Internet. Though viral marketing is a new instrument in this toolbox, it naturally has to follow objectives similar to those of more established techniques. From a rational and profit-orientated point of view no marketing technique, no matter how exciting or new, is useful if it does not generate a return on the investment that has been made in it. And while it is not essential to see immediate financial returns, it is crucial that in the long run, as quoted above, every marketing technique should pay back its investments in some way.

There is some controversy in the marketing world about the appropriate objectives companies should set themselves when using viral marketing. One point of view is that “all viral marketing initiatives share the goal of turning customers into a sales and marketing channel.”²⁸ On the other hand it is also argued that “the aim of companies using viral marketing strategies is not to maximise profits; in fact, the revenue prospects are rather dim.”²⁹ The discrepancy between these two positions stems from their differing perspectives when evaluating the revenue-generating potential of viral marketing. The question is whether the focus is on viral marketing as a sales-generating channel per se or rather as a preliminary step towards the generation of profits. The emphasis will shift according to a company’s competitive environment and the general way in which it communicates its brands and manages relationships with its customers. Nonetheless there are a number of low-level objectives that can be considered for most companies using viral marketing. Campaigns are often associated with one or more of the following targets:³⁰

Increase of brand exposure and brand awareness: Both established and new brands need constant exposure to and awareness among consumers, who otherwise will not buy the products. With a compelling content e-mail, a campaign that encourages forwarding could greatly facilitate this communication objective.

Increase of website traffic: Most companies use their websites to provide product information and online purchase options as well as offering cross-selling, sign-up offers and affiliate programmes. A viral campaign can strongly motivate recipients to click on the link and go to the website.

Increase of opt-in lists: Increasingly marketers are looking for people to voluntarily sign up for the latest product information, newsletters, special offers, etc. Here, too, a contagious campaign can encourage people to sign up for the brand in question.

Loyalty programmes: Some people regularly forward an above-average number of messages. With the help of e-mail tracking systems such people can be identified and possibly turned into champions of the organisation. Not only do they become loyal to the company but they also persuade others to do the same.

Customer relationship management: Viral campaigns can also foster the relationship between the company and its target audience. Relevant content can be sent on a regular basis and hence tie the consumer closer to the company and possibly raise switching barriers. “If businesses can make it simple and enjoyable for customers to interact with them, customers aren’t likely to switch to another supplier because they may not be treated as well.”³¹

Above these low-level objectives there are the high-level objectives of any marketing campaign: an increase in sales, an improvement in market penetration and a boost in market share.

2 key elements of communication

In her book on the use and importance of language in evolution Robin Dunbar states that “human being is all about talking. It’s the tittle-tattle of life that makes the world go round.We are social beings, and our world is cocooned in the interests and minutiae of everyday social life.”³² The reasons we communicate with each other are literally thousandfold and our motivation for doing so differs immensely according to the situation, place and people in front of us: “People all around the world constantly exchange comment about everything, from golf to the meaning of life. Billions of comments about relationships, movies, food, money, products and services move between people every day. Comments use many vehicles, but whether they move over phone lines, in e-mail messages, on paper, or over the dinner table, comments always start in one brain and end up in another.”³³

The following sections in this chapter deal with some fundamental aspects of communication that are essential in viral marketing - word-of-mouth recommendation, opinion leadership and the relevance of strong and weak ties. These three elements together constitute the key requirement for communicating with consumers by means of viral marketing - the ability to connect people from different social groups and clusters.

2.1 Word of mouth

“In many ways the easiest way to understand viral marketing is to consider it as ‘super-charged word of mouth over the Internet’. I receive a piece of communication from a friend, associate or company; I like what I see so I tell others by forwarding the electronic communication. It all happens at the click of a button, which explains another name for viral marketing; ‘word of mouse’. ”³⁴ When it comes to products and services, the reasons we exchange information are often similar. We seek recommendations for unknown products or services or we want to validate already formed opinions in a complex world, where things are available in thousands of shapes and sizes. For the individual it is virtually impossible to validate every single pre-purchase decision by an extensive information search or alternative evaluation. This process is called word-of-mouth communication and it plays a pivotal role in the marketing world. “It refers to informal communication, both positive and negative, between individuals about characteristics of a supplier and / or his products, and services.”³⁵

Emanuel Rosen quotes some impressive statistics about the major role of word-of-mouth recommendations in the process of consumers’ pre-purchase decision-making:³⁶

According to the Travel Industry Association, friends and relatives are the number one source of information about places to visit or about flights, hotels or rental cars; Sixty-five percent of customers who bought a Palm organizer told the manufacturers that they had heard about it from another person; According to a study by Maritz Marketing Research, fifty-three percent of moviegoers rely to some extent on a recommendation from someone they know.

This list could easily be extended by numerous other examples in which a trusted source is consulted before decisions are made. The importance of this effect is strongly supported by the fact that “even in this era of mass communication and mass advertising, it has been estimated that as much as 80% of all buying decisions are influenced by someone’s direct recommendation.”³⁷

So why is word-of-mouth recommendation such a powerful force in the marketing world? Why do people rely so heavily on the opinions of their peers before making purchase decisions? The reason is that the advice-seeking person benefits in a number of ways when consulting a trusted source. In his book about The Secrets of Word-of-mouth Marketing, George Silverman gives several examples that explain ‘the power of word of mouth’³⁸

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¹ Kotler; Jain; Maesincee, 2002, p.ix

² Kotler; Jain; Maesincee, 2002, p.16

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.

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

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

¹⁴ ibid.

¹⁵ Philippi, 2004, www.zeromillion.com

¹⁶ Graham, 2004, www.clickz.com

¹⁷ Wind; Wind; Mahajan, 2001, p.15

¹⁸ Rasmusson, 2000, p.18

¹⁹ Perry and Whitaker, 2002, p.6

²⁰ Helm, 2000, p.158

²¹ Helm, 2000, p.158

²² Jurvetson; Draper, 1998

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

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

²⁵ cf. Helm, 2000, p.159

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

²⁷ Dibb; Simkin; Pride; Ferrell, 2001, p.459

²⁸ Diorio, 2001, www.clickz.com

²⁹ Helm, 2000, p.160

³⁰ cf. Gotmarketing, 2004, www.gotmarketing.com

³¹ Sweat, 2000, p.45

³² Dunbar, 1996, p.4

³³ Rosen, 2001, p.7

³⁴ Perry; Whitaker, 2002, p.8

³⁵ Tax; Chandrashekaran; Christiansen, 1993, p.74

³⁶ cf. Rosen, 2001, p.5

³⁷ Richins; Root-Shaffer, 1988, p.32

³⁸ cf. Silverman, 2001, p.21ff