Word of mouth marketing is defined by Nyilasy (2006) as interpersonal communication about a commercial topic with the communicators not perceived to be commercially motivated (For a more detailed definition of word-of-mouth marketing see the literature review of Nyilasy 2006: 161-184). Researchers found support for the hypothesis that word of mouth is stronger than advertising or other marketing communication forms (Nyilasy 2006: 170). It has a positive influence on brand awareness, brand evaluations (Udell 1966; Reynolds and Darden 1971; Laczniak et al. 2001), and purchase intentions (Charlett and Garland 1995). Further, it is a naturally occurring behavior of consumers that can be monitored, influenced, and accelerated. In HNWI circles, word of mouth plays an especially strong role due to the following reasons:
1) Risk of transaction. Consumers tend to seek out and listen to word of mouth more when the transaction is perceived as risky, in “high involvement” segments, meaning the product or service is higher priced, more complex, or more personally relevant (Nyilasy 2006: 175; Hugstad et al. 1987; Rogers 1995). Among HNWIs and individuals with a high income, this leads to a heavier reliance on information from sources they know—colleagues, business partners, friends and family—when it comes to purchase decisions. Higher levels of perceived risk are also one of the main characteristics of services as opposed to products. Among HNWIs the usage of services is disproportionally higher (The “services marketing theory” states that rules for marketing theory concerning the service sector are fundamentally different from the product sector, see Murray 1991).
2) Normative influence. The conformity to opinion leaders and group norms is a strong factor in the luxury segment. The more you go to the exclusive edge of the product portfolio, the more the economy is taste-driven, not performance-driven, with people relying more on word of mouth to form opinions prior to purchase. Consumers decide to buy products they like best for personal reasons, a judgement that is always subjective and influenced by their social setting (Chadha and Husband 2006: 254; Nyilasy 2006: 170; Klosterman 2006). Especially in the fashion and apparel business, word of mouth is not only a marketing tool but the main channel where the brand is discussed and evaluated. Advertising creates awareness and defines the brand's image, but in the end the consumer pays a lot of attention to the media and opinions from friends or persons they are socially interacting with (Chadha and Husband 2006: 34).
3) Social filter function. The higher the consumption level, the more you need the social network filter function. It is an efficient way of evaluating risky transactions in an economy of insecurities. As the vividness of information gathered in close interaction is more accessible than impersonal messages, receivers are more likely to use it for product judgements (Paul et al. 1991), perceiving it as being filtered by the social milieu in which the transaction is taking place. Every node in the network ultimately performs his or her own quality-control test, and, based on the results, decides whether to pass the word further. In order to get access to HNWI customers, you have to become part of their networks. The goal is to reach the most exclusive of marketing environments: personal, uncoerced communication.
These three factors do not suggest shying away from traditional forms of marketing. Keeping advertising is important, as it induces word of mouth. It provides the background for buzz-creating activity, builds awareness and a predefined image. But finally it is the buzz that consumers trust more and act on (Chadha and Husband 2006: 254). Managing it should be a part of and not a replacement for traditional marketing methods, by integrating it into a wider campaign that includes the profiling and recruitment of influential consumers (Nyilasy 2006: 175).
This “screening” of word of mouth is especially important considering the recent explosion in the use of blogs, social networking services (SNS) and other consumer generated media in line with the popularization of the internet (Nomura Research Institute 2006: Ministry of Internal Affairs and Communications data indicates that as of March 31, 2006, around 8.68 million Japanese had used a blog and 7.16 million a SNS). Further, due to the new media channels, it is now possible to screen it. As Hakuhodo puts it: “Now that word of mouth and other consumer-initiated information appearing on the Internet can have an impact on corporate brand reputation as well as product sales, advertisers are keen to acquire up-to-the-minute pictures of the CGM [consumer generated media] buzz surrounding their products and services, and to use this information in advertising promotions and product plan marketing.” (Hakuhodo 2007: 1. Tokyo—August 31, 2007—Hakuhodo has launched Topic Finder, an analysis service that traces and reports changes in corporate and brand buzz and reputation in postings on blogs and other consumer generated media [CGM], incorporating sophisticated Japanese language analysis functions). As the brand value of companies is now under the scrutiny of online communities and therefore connected to a long-term investment in authenticity, brand principles like consistency, continuity, and visibility will become much more important in the future (Rosen 2003: 93; Clegg 2005; Kotler and Pfoertsch 2006: 147, 165; Bedbury 2002: 183).
Network Hubs and opinion leaders
The identification of opinion leaders is a key element in the management of word of mouth. Affluents tend to be better connected than normal customers. But also within those better connected networks, influencers and opinion leaders are to be found, a task that is easier if you are part of the respective social environment (Rosen 2003: 138; Nyilasy 2006: 172). Rosen (2003) defines “network hubs” as active opinion leaders who are more connected and cosmopolitan, more information hungry, and more exposed to the media than other people. Identifying them can be tricky due to different priorities of social hierarchies who are dependent on the respective culture and social setting (this is especially important in Japan). To find them, an environment that enhances two-way communication and personal contact is needed, without giving potential customers the feeling that they are being marketed. In Japan, the problem is that networks are difficult to access without inside connections, and are many times not open to foreigners (See Hall 1998). The language barrier and missing social ties create the need for support by local partner companies, like the ones described in the previous section, who can provide guidance and expertise in the HNWI segment (Usui 2005; Tsuchiya 2007; Takaoka 2008).
Accelerating word of mouth
In order to accelerate buzz, approaching network-hubs that are more central in social networks can be necessary, so-called “leapfrogging.” This is possible by providing conditions that make these kind of shortcuts more likely to happen. Creating environments where customers can meet other people from remote networks helps buzz to leap from cluster to cluster. These “new combinations” (Jacobs 1929) often happen by chance, with a higher probability in dense areas of networks—trade shows, industry events, social parties—with a critical mass of influential and connected people (Rosen 2003: 127. Sometimes creating a critical mass can mean inviting less people, as in the case of the Roots Galleries of Roots and Partners. As Tatsuya Masubuchi explains, ultra-HNWIs enjoy the selected company of few individuals. It gives them a feeling of security and ease. They feel uneasy to talk about important business matters at big social gatherings. In that case, the careful selection and the relevance of the selection to their personal and business matters is important. Interview with Tatsuya Masubuchi, Tokyo, 26.08.2008). If successfully implemented, people who benefit from this constellation will associate the network with brands participating in the environment (Granovetter 1973: he found evidence that the ties farther away, not closer, were most influential. Those “weak ties” play intricately influential roles in success and business). Network-hubs often serve as a bridge between cliques and clusters in the local community, bypassing the selective filter-effect of clusters, and countering the “busy network paradox” of only being flooded by messages from existing networks (Rosen 2003: 69-70, 79, 48-51). The art in rich marketing is about reaching these opinion leaders and creating these shortcuts.
In figure 3.8 the marketing model from figure 3.7 is limited to level 3 consumers. In the model, level 2 and level 1 customers are not included in the cycle of networking. This can be disadvantageous, as the CRV (customer referral value) of a normal customer might be high enough to qualify him or her for an inclusion in the network cycle. Companies should keep a close eye on the “real” value of customers, meaning their CRV. Exactly this is why event marketing and keeping “in touch” with customers is so important. Participating in networks is a feedback instrument for companies that allows them to judge individuals on a more personal level, and is often the only way to get information on HNWIs or network-hubs.HNWI Event Marketing
Advertising is good for maintaining and reinforcing the image, but PR should replace it “as the major communications vehicle for launching or repositioning a brand.” (Callahan and Ries 2002; see also Goddkind 2006; Rosen 2003: 145) Event marketing can create buzz topics, cause coverage in public media, and deliver a brand message that network hubs will tailor to the language of their social networks, offering a more indirect way of delivering the information. Telling stories about experiences has greater social value than telling stories about acquired possessions (Danziger 2005: 36).
Making customers feel that they are part of an insider club about something that is personally important to them, taking people behind the scenes and letting them feel engaged—all this motivates them to share their knowledge and excitement with others. The important factor is to limit the availability of the information, and releasing it gradually over time, like giving sneak previews to mega-hubs and combining it with event marketing) (Rosen 2003: 172), or nurturing close relationships with the best of customers and giving them access to limited versions, information, privileges, and concierge services (Chadha and Husband 2006: 265) as offered by the Ypsilon Group.
Such events are a place of social interaction, with an “unspoken understanding” that business is being conducted without formally constructing events with the ostensible goal of doing business (Currid 2007: 99). They have to be professionally managed experiences with individuals on the luxury company's payroll who are able to connect with the elite on a one-on-one basis, their key qualification being the extent of their social network and the ability to move in the same circles as the social elite (Chadha and Husband 2006: 256).
The art events provided by Ypsilon Group offer a good example for creating an event with social value that is considered sophisticated and attracts the right kind of HNWIs. People want to share the information that they are taking part in such a setting. During the event, brand names of client companies appear and are being consumed as part of the whole experience, helping to associate the brand with the event and the recent trend in participating in art and culture. New connections with other social networks are created, setting a scene for interaction that operates on two distinct levels: in a formal transfusion of information (the artwork, the movie premiere, the fashion show), and as a place of economic exchange for the individuals that come to the formalized event.
