Peer influence and word of mouth marketing are both powerful techniques that use social networks to produce increases in brand awareness. At the end of the day, we as consumers rely on the opinions and advice of our friends, family and even strangers when it comes to making purchases, going on holiday and selecting a doctor (among other things, of course).

Global PR firm Edelman recently put out its annual “Trust Barometer”. Findings indicate that 25% of people say their friends and peers are credible information sources over companies. We are faced with a variety of social networking tools, be it Facebook, MySpace or Twitter where we are able to share our thoughts, opinions and recommendations with just about anyone. As CEO Richard Edelman says, “consumers have to see and hear things in five different places before they believe it.”

We all make impressions on each other. It’s a simple definition of word of mouth. Of those who make impressions about products and services, there are a small few known as “igniters” who are responsible for generating the most amount of impressions. They’re at the top of the pyramid and a marketer’s dream to target. Yet word of mouth marketing is a double-edged sword. Consumers have more ways to wield their influence and opinion and as companies try to control or direct word of mouth, they risk failure. Social Media amplifies the voice of a disgruntled customer, and companies are under constant pressure to react correctly. Managing word of mouth really is a fine art.

Let’s look at some statistics to delve deeper into the positives and negatives of online word of mouth marketing:

From Advertising Age – Spotting the Creators of Peer Influence (April, 2010)

• People make over 500 billion impressions on each other about products and services every year.
• A minority of people generate 80% of the impressions.
• About 6.2% of the online adults generate 80% of the influence impressions.
• Around 13.8% of the online adults generate 80% of the influence posts.
• 62% of impressions come from Facebook, while around 40% come from blog posts and blog comments.
• For a 12-month period ending the 30th September last year, Nielsen Online estimates that advertisers created 1.974 trillion online advertising impressions, compared to the 500 billion impressions people make on each other about products and services.

If you look at the stats presented by Nielsen Online, you will see that people’s online impressions on each other are only about one fourth of the online advertising impressions. However, peer impressions are more credible than advertising.

From Mashable – The State of Online Word of Mouth Marketing (April 2010)

Mashable recently published an article delving deeper into Advertising Ages’ findings above. The research looked at where those influence impressions are happening. The following graph captures the results of where people are sharing influence online in Social Media and networking sites, as well as blog posts, rating and review sites.

From eMarketer - Word-of-Mouth Marketing: Winning Friends and Influencing Customers (June 2007)

These stats are a bit outdated; however, they provide an interesting projection on the number of American adult Internet users who are word of mouth influencers: 

In a study conducted by social networking site myYearbook, 81% of respondents said they'd received advice from friends and followers relating to a product purchase through a social site. 74% of those who received such advice found it to be influential in their decision. (Click Z, January 2010)

• 83% of online shoppers said they are interested in sharing information about their purchases with people they know, while 74% are influenced by the opinions of others in their decision to buy the product in the first place. (Manage Smarter, September 2009)
• Online user reviews have the biggest influence on consumer electronics purchases, with 43.7% of purchases affected by word of mouth. (BIGresearch, December 2009)
• Users put great trust in their social networks. One-half of Beresford respondents said they considered information shared on their networks when making a decision—and the proportion was higher among users ages 18 to 24, at 65%. (eMarketer, October 2009)
• 67% of shoppers spend more online after recommendations from online community of friends. (Internet Retailer, September 2009)
• Facebook, blogs, Twitter and customer reviews are considered the most effective tactics for mobilising consumers to talk up products online. (Etailing survey of 117 companies, September 2009)

There is also a lot of negative word of mouth marketing online.

Retailers are now in the Social Media space. If you search Twitter and Facebook, you will witness many Fortune 100 companies who are presently and actively engaging with their customers. Consumers use Social Media sites like Facebook and Twitter to both praise and criticise retailers. As mentioned, managing word of mouth and the negative responses which arise is really a fine art and it is the negative comments that truly test a retailer’s ability to manage customer relationships.

Retailers also look for influencers within the mass market – those individual consumers who love the brand so much and enjoy being an advocator.

From eMarketer – Dealing with Negative Online Word-of-Mouth  (May 2010)

According to Dynamic Logic and Millward Brown, retail is the industry most likely to be followed by American social network users.

With the mix of negative and positive word of mouth marketing online, companies must determine whether managing it is a crisis or opportunity:

From Get Elastic - Negative Word Of Mouth: Crisis or Opportunity (May  2008)

• 59% of consumers use Social Media to vent their frustrations about their customer service experiences, and research other companies’ customer service before dealing with them.
• 74% choose companies/brands based on others’ customer-care experiences shared online.
• 72% research companies’ customer care online prior to purchasing products and services at least sometimes.
• 84% consider the quality of customer care at least sometimes in their decision to do business with a company.
• 81% say blogs, online rating systems and discussion forums can give consumers a greater voice regarding customer care, but less than 33% say they believe that businesses take customers’ opinions seriously.