Title: Substantial Effects of Word of Mouth Marketing in Telecommunications Industry ID NUMBER: 2013:135 Author: Hazar Kutay KIRISCIOGLU Company Master Thesis: Telefónica Global Solutions Tutor: Ana María Vargas Pérez Universidad Politécnica de Madrid 8th Edition, 2011 - 2013 Como, June, 27, 2013 IMIM, 2011-2013 Hazar Kutay KIRISCIOGLU Acknowledgements This study is a reflection of all my academic background, business experience and personal observations up to that point of my life. However, it is not even necessary to state that, it would have remained a dream, without the precious assistance of all people on the backstage. It gives me great pleasure to thank all of them with that occasion. First things first, everything that I achieved in my life, is because of my parents. Even in their absence in abroad, I always felt their endless love and support without any doubt. Ayhan and Nevin KIRISCIOGLU, I am very lucky to have parents like you. I cannot find words to express my gratitude to IMIM Committee, valuable professors from all member universities and staff. IMIM program was literally a milestone in my personal development and these people made it real with their valuable support. I owe my deepest gratitude to my master thesis tutor, Ana Maria Vargas Pérez, for her friendly approach and excellent collaboration. I consider it as an honour to study for two years with my classmates, coming from 12 different countries. They helped me to be a global individual with an enlarged viewpoint. Special thanks come to Roberta Gibello Ribatto for sharing that challenging thesis preparation period with me. It was relaxing to have a true friend like you, especially on that stressful period. Working in Telefónica Global Solutions was a unique working experience that I will feel its advantages in the near future. Working in such a multinational enterprise with qualified professionals made my studies more valuable. Mr David Álvarez Piña, Ms María Dolores García Encinas and Mr Fernando Pascullo, thank you very much for all your effort on my thesis and professional development. It was a pleasure to work with you. Finally, I am indebted to my many Telefónica colleagues for sharing their ideas and comments on my studies. 2 IMIM, 2011-2013 Hazar Kutay KIRISCIOGLU Abstract One of the biggest responsibilities of today‟s marketing managers is to use their financial and labour resources in the most efficient way. However, any kind of traditional marketing method which is designed and spread by the seller is both costly and less influential on customer‟s buying behaviour. Word of Mouth, which can simply be explained as any marketing action that leads to earn customer recommendation, (Word of Mouth Marketing Association) helps organizations to burst their sales revenues while decreasing their marketing budgets. WOM is considered as more transparent, more credible and more relevant by customers. Besides, it is a cheaper way of advertisement for organizations due to its organic spread characteristic. Therefore, marketers should focus on creating strategic marketing actions that will keep WOM effect at the peak level. This research attempts to disprove the common belief that, WOM cannot be controlled by the seller itself. Especially, the effort will be put on Business to Business relationships, which are usually considered more unreactive to WOM communication. In order to achieve that, author will provide a four-step WOM analysis framework to its readers. First, transactions mapping will be utilised to see possible areas of WOM development. Afterwards, WOM actors of the market will be identified and customer decision cycle elements will be disclosed in order to understand the WOM potential of a particular market. Final step of the framework will be the calculation of Customer‟s Total Value which is composed of their Lifetime and Referral Values. Research also includes an online survey, whose results are converted to numerical data in order to determine Customers´ Referral Value. In the final part, Telefónica Data/Capacity Services´ customers will be ranked according to their total values and a Customer Value Matrix will be created. Customers will be segmented into four main groups named as Champions, Affluents, Advocates and Misers; all of which have different buying and WOM characteristics. Ultimately, tailored WOM strategies will be advised in order to maximize each group‟s total value. Keywords: Word of Mouth, Traditional Marketing, Business to Business, Customer Lifetime Value, Customer Referral Value, Measurement, Tailored WOM Strategies, Connectivity 3 IMIM, 2011-2013 Hazar Kutay KIRISCIOGLU TABLE OF CONTENTS 1. INTRODUCTION ............................................................................................................. 8 1.1. Background Information ............................................................................................. 8 1.2. Problem Definition ...................................................................................................... 9 1.2.1. Problem A- Marketing resources are limited ........................................................... 9 1.2.2. Problem B- Customer Decision Time has to be shortened .................................... 10 1.2.3. Problem C- WOM is considered as impenetrable.................................................. 11 1.3. Research Questions ................................................................................................... 12 1.4. Value of the Research ............................................................................................... 13 1.5. Thesis Outline ........................................................................................................... 13 2. RESEARCH METHODOLOGY..................................................................................... 15 2.1. Research Paradigm .................................................................................................... 15 2.1.1. Positivism ........................................................................................................... 15 2.1.2. Interpretivism ..................................................................................................... 16 2.1.3. Author´s Choice of Research Paradigm ............................................................. 18 2.2. Research Approach ................................................................................................... 18 2.2.1. Deductive Reasoning ......................................................................................... 18 2.2.2. Inductive Reasoning........................................................................................... 19 2.1.3. Author´s Choice of Research Approach ................................................................ 20 2.3. Data Analysis Methods ............................................................................................. 20 2.3.1. Quantitative Research Methods ......................................................................... 20 2.3.2. Qualitative Research Methods ........................................................................... 21 2.3.3. Author´s Choice of Data Analysis Method ........................................................ 21 2.4. Data Collection Tools................................................................................................ 22 2.4.1. Qualitative Tools ................................................................................................ 22 2.4.2. Quantitative Tools .............................................................................................. 23 4 IMIM, 2011-2013 Hazar Kutay KIRISCIOGLU 3. LITERATURE REVIEW ................................................................................................ 24 3.1. Definitions of WOM Marketing ................................................................................ 24 3.2. Features of Word of Mouth Marketing ..................................................................... 26 3.2.1. WOM Delivers Experience ................................................................................ 26 3.2.2. WOM is Independent, Therefore More Credible ............................................... 26 3.2.3. WOM is Not a Push Strategy ............................................................................. 27 3.2.4. WOM Is Custom Tailored, More Relevant and Complete ................................ 27 3.2.5. WOM Information Is Self-generating, Grows Exponentially ............................ 28 3.2.6. WOM Is Tremendously Cheap and Labour-Saving .......................................... 29 3.3. Trends in Traditional Marketing (TV advertisement) ............................................... 29 3.4. WOM Analysis in Four Steps ................................................................................... 30 3.4.1. Map Transactions and Identify Areas of WOM Controls .................................. 30 3.4.2. Identify WOM Actors ........................................................................................ 31 3.4.3. Define your company´s current Status of WOM ............................................... 36 3.4.4. Segment Customers and Create “Customer Value Matrix” ............................... 39 3.5. Customer Decision Cycle Elements .......................................................................... 44 3.5.1. Product/Service Attribute Information .............................................................. 45 3.5.2. Customer Type ..................................................................................................