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Rise in Word-of-Mouth Marketing Investment

Spending on word-of-mouth (WoM) marketing jumped 35.9 percent in 2006 to $981.0 million and is expected to top $1 billion in 2007, making it one of the fastest growing alternative media segments.

Driving the growth is the continued consumer shift to alternative media and the marketer's need for increased brand engagement and ROI. These are some of the findings of the first in-depth analysis of the emerging word-of-mouth (WoM) marketing industry by PQ Media.

PQ Media defines Word-of-Mouth (WoM) marketing as an alternative marketing strategy supported by research and technology that encourages consumers to dialogue about products and services.

And for the first time in the long history of WoM marketing, an industry has arisen by integrating strategy, technology and measurement from its earliest stages of development. Brand marketers are responding, and have begun to increase their WoM media budgets, moving from test phase to implementations that support their integrated marketing campaigns.

WoM marketing includes two major segments, with six underlying categories. Content & Services is comprised of Strategy & Consulting, WoM Agencies, Online Communities and WoM Media, while Ancillary Products includes Research & Measurement and Technology & Tools.

Spending on WoM content, services and ancillary products grew at double-digit rates every year from 2001 to 2006, according to PQ Media's Word-of-Mouth Marketing Forecast. Spending grew at a compound annual rate of 66.7 percent from 2001 to 2006, fueled by increased demand from brand marketers seeking to justify ROI in advertising and marketing services.

Word-of-Mouth (WoM) Marketing is the fastest-growing segment of the $254 billion marketing services sector of the media industry, which includes among others, branded entertainment, direct marketing and public relations.

WoM marketing grew almost five times faster than the overall marketing services sector in 2006 and more than six times faster than the overall media industry and nominal GDP.

Total WoM marketing expenditures are projected to climb at a compound annual rate of 30.4 percent in the 2006-2011 period to $3.70 billion as brand marketers take advantage of dedicated WoM marketing strategies for improved return on investment (ROI), according to PQ Media.

Helping to fuel this growth are a projected 3.5 billion brand-related conversations per day in the U.S. , according to Keller Fay Group, with nearly 80 percent of consumers trusting recommendations from family, friends and other influential persons over all other forms of advertising and marketing.

Among the key trends driving growth, the Internet has enhanced the ability of consumers to exchange ideas about brands through social networks like Facebook and MySpace and consumer-generated media like blogs.

While Keller Fay Group research indicates 90 percent of WoM marketing still takes place offline, brand marketers have become actively involved in online WoM marketing via new media, metrics and WoM specialists.

The new media industry axiom -- only what gets measured gets bought -- has led to a discernible shift in media spending from traditional to alternative advertising and marketing strategies. The word-of-mouth marketing industry is capitalizing on this trend though its ability to provide ROI to brand marketers in a highly cost-effective platform.

Spending on WoM marketing is forecast to grow 37.7 percent in 2007 to $1.35 billion, as brand marketers continue to shift more dollars to WoM marketing tactics as part of their cross-platform marketing campaigns. The growth of WoM marketing is expected to continue to outpace that of the overall advertising and marketing sectors, as well as the growth of the U.S. economy, in 2007.

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