Marketing Expenditures and Word-of-Mouth Communication: Complements or Substitutes?

Abstract

In this monograph we examine the extent to which word-of-mouth communication (WOM) plays a complementary and/or substitute role with regard to advertising. A review of the existing literature reveals the main similarities and differences between these constructs. We also examine the conditions in which a social contagion process is most likely. Specifically, our literature review helps us answer the following questions: whether WOM complements the advertising effect, when and how WOM can be a substitute of the marketing effort, and which issues limit WOM's ability to inform and persuade consumers. Published empirical evidence suggests that in most cases WOM complements advertising; however, three marketing strategies — viral marketing, referral reward programs, and a firm's creation of exogenous WOM — might work without advertising. This monograph concludes with a list of unanswered questions of potential interest to both researchers and managers.