The hidden impact of word-of-mouth: A system dynamics approach

The method of System Dynamics is applied to study the impact of word-of mouth on sales over time. Five simulations (or experiments) are run under different assumptions. The outcomes show a significant leverage effect of WOM: Depending on Customer Involvement, Product Life Cycle and Customer Satisfaction, the market development of a New-Product-Introduction varies between 11.0 and 59.3 percent, the contribution of Classical Advertising ranges from 18.0 to 75.0 percent, and the contribution of WOM from 25.0 to 82.0 percent at the end of the time series. Possible insights for practitioners as well as scholars are discussed. WOM can be the decisive factor for both business success and failure when introducing a product into a market which calls for more attention of WOM in the daily business agenda. Furthermore, the model highlights the importance of various influences of WOM under different conditions which may support decision makers in planning their communication investments and in allocating their communication budgets wisely under these varying conditions.