The Effect of Within-Brand and Cross-Brand Word-of-Mouth on the Growth of Competitive Markets
Two types of word of mouth can affect the decision to adopt a new product: category level word of mouth and brand level word of mouth. From the firm’s point of view this leads to two kinds of sources for internal market communications: within-brand influences, where the adoption of the brand is a result of communication with the brand's adopters, and cross-brand influences, where a potential adopter communicates with customers of competing brands, but eventually decides to adopt the focal brand.
In this study we use a diffusion modeling approach to investigate the unexplored (yet considerable) effect of within-brand and cross-brand word of mouth on the competitive growth of markets. Specifically, we focus here on a case of a pioneer and a late entrant, and examine how cross and within brand word of mouth impact their market positions. We show that the interplay between within-brand and cross-brand influences creates a "dual pattern" penetration where the second entrant experiences a sharp initial growth, but the pioneer shows a sustainable advantage in the number of customers which increases over time in an increasing return pattern. Using this approach we shed light on an unidentified source of pioneering advantage, and explain how it may drive pioneers to aggressively acquire customers, even in the absence of conventional increasing return motivations such as network effects.We apply the model on the growth of cellular phone markets in Western Europe to examine our approach. We identified the dual pattern in 14 of the 16 countries of the region, and show that the ratio of within to cross-brand word of mouth explains this phenomenon better that other simple alternatives. We further examine what might explain the variation in this ratio across different countries, and the managerial implications of our findings.
|Dr. B. Donkers|