Independent versus Incentivized Word-of-Mouth: Effects on Listeners

INTRODUCTION Word-of-mouth (WOM) has been widely acknowledged to have a major impact on consumers' purchase decisions (e.g., Arndt, 1967; Czepiel, 1974; Katz and Lazarsfeld, 1955; Liu, 2006; Trusov, Bucklin and Pauwels, 2009). In recent years, many firms have begun to actively encourage the spread of WOM by providing incentives for customers who successfully refer others to the firm. Such incentives typically include free goods or services, discounts on future purchases, cash, or gifts (Ryu and Feick, 2007). Not only can these programs increase the likelihood that a customer will engage in positive WOM (Ryu and Feick, 2007), but customers acquired via these means can provide greater than average revenue (Villanueva, Yoo, and Hanssens 2008) and are more effectively retained over time (Schmitt, Skiera, and Van Den Bulte, 2011). As such, some researchers recommend that firms seek to encourage WOM by rewarding this behavior (Godes and Mayzlin, 2004; Liu, 2006). However, other research calls into question the value of referral programs. Some have expressed doubts as to whether WOM incentivized by firms is as valuable to the firm as independent WOM (Trusov et al., 2009). A vital aspect of the influence of word-of-mouth is that the individual providing the WOM (speaker) is viewed as credible by the individual receiving the WOM (listener) (Dichter, 1966; Martin and Lueg, 2013; Sweeney, Soutar, and Mazzarol, 2008). If this credibility is compromised, then the listener is much less likely to act on the WOM provided. Speakers who are provided a reward for engaging in WOM may be viewed by listeners as providing the WOM for self-centered purposes and not viewed as being credible, hindering any positive impact the WOM may have on the listener's views of the recommended product. Given the increasingly widespread usage of referral programs by firms and the recommendation of several researchers that firms do so, it is imperative that the impact of these programs on listeners of WOM be examined in order to investigate the viability of this practice. Relatively little empirical research has investigated what leads listeners of WOM to attend to that WOM and use it in their purchase decisions (e.g., Jun, Cha, and Aggarwal, 2011; Martin and Lueg, 2013; Sweeney et al., 2008). In examining the impact of WOM on listeners' views of the speaker and the recommended product, the concept of WOM usage (WOMU), the extent to which listeners incorporate WOM in their purchase decision process (Martin and Lueg, 2013), is utilized here. Extending this line of research regarding listeners of WOM, this study also examines the relative impact of the perceived altruism of the WOM source and the moderating impact of incentivized WOM on the relationships between source trustworthiness and altruism with WOMU. The objectives of this research are to investigate the impact of WOM speaker incentives on listeners' views of the speaker and their use of the WOM. The remainder of this manuscript is laid out as follows. First, related literature is reviewed, and hypotheses are put forth. Then, details regarding the methods used to test the hypotheses are reported. Last, a discussion of the results and the implications of this research for researchers and practitioners are provided, as well as limitations and areas of needed future research. LITERATURE REVIEW AND HYPOTHESES WOM is an informal and dynamic form of interpersonal communication between two or more noncommercial parties concerning products (Arndt, 1967; Kozinets, de Valck, Wojnicki, and Wilner, 2010). Many factors have been identified which increase consumers' engagement in WOM, including positive emotions (White, 2010), perceived fairness (Blodgett, Granbois, and Walters, 1993), commitment, perceived value, quality, trust, satisfaction, and loyalty (de Matos and Rossi, 2008), and products which are original (Moldovan, Goldenberg, Chattopadhyay, 2011), interesting, and publicly visible (Berger and Schwartz, 2011). …