Word of mouth: quantifying buzz

Interesting paper that quantitatively examines word of mouth (WOM) and its relation to future sales.

"[The] success of a product is related to the WOM that it generates. In fact, it is commonly believed that WOM directly impacts sales. It might affect awareness in some cases, or preferences in others. On the other hand, WOM may simply serve as a leading indicator of a product's success."

Whether word-of-mouth is a driver of sales or merely a leading indicator, it is clear that a firm introducing a new product ought to try to measure it. This paper examines two quantitative measures of word-of-mouth: volume and dispersion. Volume is simply the quantity of buzz (e.g, how many Usenet posts with “Blair Witch Project” on the subject line). Dispersion is a measure of how this volume of buzz is dispersed among disparate communities – for instance, if Resident Evil gets talked about only on rec.arts.erotica.milla.jovovich it has low dispersion whereas if it gets picked up by a variety of different user communities it might have a higher dispersion. The measure of dispersion is the familar entropy formula with p_i= proportion of posts on this show that appear in newsgroup i. The paper examines the hypotheses that higher volume and dispersion are correlated to higher future sales of the product.

In the context of this paper, the product category is new TV shows and "sales" are measured by Nielsen’s Ratings. It examines the correlation between word-of-mouth about the show in the online community (Usenet) and Nielsen’s Ratings for the show in subsequent weeks. The key findings are that (1) volume is not consistently associated with higher future sales, (2) higher dispersion is correlated to higher future sales, (3) the effect of dispersion decreases over time (which implies that WOM is particularly important early on in the product lifecycle).

See also the New York Times article that discusses this paper as well as my recent post on Book Watch, which also makes an attempt to glean information from online buzz. More on this subject later.