The Grapevine Effect – Understanding ‘Word-of-Mouth’

Academic Source: Managing Social Media and Consumerism: The Grapevine Effect in Competitive Markets by Rajagopal


The 'grapevine' is an increasingly important avenue of business communication and has become critical in building and breaking firms in a competitive marketplace. A grapevine is the process of informal transfer of purchase/consumption-related information among consumers. AKA - what we call 'word-of-mouth' reputation.


"Consumer perceptions lead to positive or negative effects of the grapevine in reference to the extent of satisfaction or dissatisfaction accrued on any incidence of business negotiation or product experience. Grapevine channels carry information rapidly and spread faster than a firm's formal business communication." 


In other words, consumers' reactions to business decisions happens at a much faster rate than a company can understand and respond to those consumer reactions. Social media has transformed 'word-of-mouth' (WOM) into a tangible, measurable force in the marketplace that impacts firms substantially despite what they might do to craft their brand image or reputation. It is both informal and complex. The experts have even developed a metric called NPS (Net Promoter Score) to capture how customer's WOM, both negative and positive, can be used to advance the growth of firms.

Rajagopal argues that companies are scrapping their traditional advertising/communication budgets and diverting more resources to creating an active presence on social media because social media has used new technology to transform WOM from an abstraction into a brutally efficient arbitrator in the marketplace. BUT, since social media is a totally different animal than traditional communication strategies, companies who don't know how to manage grapevines are entering a battle they have no idea how to fight.


Rajagopal reviews many examples of companies who succeed and fail in managing their grapevines and ultimately concludes that the value of a firm's competitiveness in the marketplace is based on their Social Media Appraisal on Responsiveness and Trust (or, SMART). The factors that influence a firm's SMART (and, in turn, their value) include analyzing the personality of products or services, intervening in consumer decision making through social media, responsiveness to both positive and negative consumer engagement, and perceived trustworthiness.