The impact of negative word-of-mouth on web 2.0 on brand equity

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The Impact of Negative Word-of-Mouth in Web 2.0 on Brand Equity

Sylvia Ng, Sally Rao Hill, the University of Adelaide
Abstract
Many companies have jumped on the Web 2.0 bandwagon given its hype and potential gains
for marketers. However, the rise of Web 2.0 as a popular media tool may undermine the
control that traditional advertising has over consumers’ perceptions of brands. This paper
develops a theoretical framework about the impact of negative WOM on Web 2.0 on brand
equity. Preliminary focus groups findings show that negative WOM on Web 2.0 with high
level of consensus heighten the perceived risk of purchasing a brand and may damage brand
equity that has been built over time, particularly perceived quality of the brand and attitude
towards the brand.

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The Impact of Negative Word-of-Mouth on Web 2.0 on Brand Equity


Introduction

The facilitation of word-of-mouth through the Internet has drastically changed the way
information is created and transmitted. Prior to the digital era, marketing communication via
the mass media was more accessible to companies than individuals in enabling the
dissemination of information to a large population. Traditionally, advertising is used to
increase brand equity to influence consumers’ buying behaviours (Yoo, Donthu and Lee
2000). This resulted in the brand strategist’s power to create the value of a brand (Bengtsson,
2006). However, the increasing popularity of Web 2.0 as medium of communication and
information sharing, poses a threat to companies’ branding effort. Its interactivity and largely
user generated content have altered the power between the consumer and the company (Hong
and Lee, 2005). It is reported that 84% of Australians use Web 2.0 for sharing content, while
83% consume user generated media content (Nielsen, 2008) that is considered highly relevant
and influential on peoples’ opinions about brands and products (Nielsen, 2008b). In Web 2.0,
consumers are exposed to both positive and negative brand information. For example, a
person will get exposed to a list of 37,100,000 websites that include videos, social network
sites and discussion boards, just by typing “hate Apple” into Google. This sort of search
behaviour is facilitated by the convenience of online research, when consumers look for
balanced and non-commercial biased information of a product before purchasing.
Therefore, the primary objective of this research is to investigate the effects of online negative
WOM in the context of Web 2.0 on brand equity. This paper will first provide a brief
literature review on WOM and brand equity, in order to build a conceptual framework.
Methodologies are then proposed and preliminary findings are discussed before implications
and conclusions are drawn.

Literature Review

WOM. Word-of-mouth communication is defined in this study as the informal
communication between private parties in which products or services are evaluated
(Mazzarol, Sweeney and Soutar, 2007; Anderson, 1998). This definition emphasizes the
interpersonal and “non-commercial” bias (Arndt, 1967, p. 190) aspects of communication
between consumers (eg. East, Hammond, Wright, 2007; East, Hammond and Lomax, 2008).

Despite its irresistible force in shaping consumer product opinions, the complexities of WOM
communications have not been thoroughly accounted for (Graham and Havlena, 2007). WOM
is often investigated as a behavioural consequence, rather than a focal construct (Laczniak,
Decarlo and Ramaswami, 2001; Matos and Rossi, 2008). Further, marketing research
possesses an overly optimistic view towards WOM, focusing primarily on positive WOM
communications. Evidence from Matos and Rossi s’ (2008) meta-analytical study showed the
lack of negative WOM studies in relation to the overwhelming amount of positive WOM
literature. The imbalance between positive and negative WOM research suggests a biased
approach towards WOM, downplaying the possible impact of negative WOM on other
marketing constructs such as brand equity. Therefore, this research will focus on negative
WOM, recognising that it is distinct from positive WOM and should be examined separately.

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Research has established that WOM is closely linked to brand evaluations. In the negative
WOM context, Laczniak et al (2001) reported that brand attributions have a negative effect on
brand evaluations. This is because receivers tend to link the negativity of WOM messages to a
brand via brand attribution, which will affect evaluations negatively. This concept is
developed upon the cognitive processing models of performance evaluation, which suggests
that there is a direct linkage between performance attributions of an employee and his or her
performance evaluations (Laczniak et al., 2001).

In the context of Web 2.0, the Internet has radically magnified the impact of WOM. Online
WOM is a powerful force in determining consumers’ perceptions towards brands for a
number of reasons. First, WOM is an intermediate step in the mass persuasion process
(Graham and Havlena, 2007) and a dominant decision clincher (Graham and Havlena, 2007;
Arndt, 1967). Second, the Internet is like “super-megaphone” (Hong and Lee, 2005, p.91),
giving any individual’s WOM the ability to reach more consumers more rapidly (Davis and
Khazanchi, 2008). Recent studies also show that there is a “high level of consumer acceptance
and reliance on online WOM” (Davis and Khazanchi, 2008, p. 130), where information
provided by weak ties is prevalent. Thus, the impact of online conversations should not be
undermined, given the ability of weak ties to influence perceptions. Since previous offline
WOM studies have failed to establish a strong link between the two constructs of WOM and
brand equity (eg. Krishnan, 1996), this study will investigate the relationship in the context of
Web 2.0. That is, WOM as an indirect experience of a brand that may affect consumer-based
equity indicators in the memory model (Krishnan, 1996), which will be discussed later.

The Two Perspectives of Brand Equity. There is little agreement on the exact meaning of
brand equity, despite the availability of numerous definitions for brand equity in the literature
(Pappu, Pascale and Cooksey, 2005, Park and Srinivasan, 1994). Nonetheless, its definition is
often given as the “incremental utility or value added to a product by its brand name” (eg.
Yoo, Donthu and Lee, 2000, p. 195; Farquhar, 1989, Han and Ijiri, 1991; Rangaswamy, Burke
and Oliva, 1993). Brand equity can be established from either the financial perspective or the
consumer perspective (Pappu et al., 2005).

The financial perspective of brand equity “stress(es) the value of a brand to the firm” (Pappu
et al, 2005, p. 144; Shocker and Weitz, 1988; Simon and Sullivan, 1993). In another words,
this approach measures brand equity at firm level (Park and Srinivasan, 1994). Previous
studies have estimated brand equity as the “incremental cash flows that accrue to the firm due
to its investment in brands” (Park and Srinivasan, 1994, p. 271). Given that this method relies
on “data aggregated to the firm level (Park and Srinivasan, 1994) in approximating the overall
monetary value of the firm’s brands, it may not be useful in determining the value of each
individual brand. Furthermore, it measures only the resulting impact and neglects the drivers
of brand equity. Nonetheless, some of the demerits of this measurement can be addressed
using the consumer perspective approach.

The consumer perspective emphasizes the “value of a brand to the consumer” (eg. Pappu et al,
2005, p. 144; Aaker, 1991; Rangaswamy et al, 1993). This is referred to as consumer-based
brand equity, which is often based on the Associative Network Memory model (Aaker, 1991;
Keller, 1993). In contrast to the financial standpoint, this definition focuses on the value
attached to the brand from the consumers’ point of view (Pappu, Quester and Cooksey, 2005).
Researchers argue that “(t)here is value to the investor, the manufacturer and the retailer only
if there is value for the consumer” (Pappu et al., 2005, p.144; Cobb-Walgren, Beal and
Donthu, 1995, p. 26). Thus, the fundamental drivers of brand equity are considered in this

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method, as they are “major determinant(s) in product purchase behaviour” (Farquhar, 1989,
p.25). Since WOM predominantly influences consumers in their perceptions of a brand, the
consumer perspective approach is more appropriate for this study.

Moderating Variables. Existing literature suggest that Product involvement, Product
knowledge and brand familiarity are variables that will moderate the effects of WOM on
brand equity. Product Involvement is “a person’s perceived relevance of the object based on
inherent needs, values, and interests” (Giese, Spangenberg and Crowley, 1996, p.188;
Zaichkowsky, 1985, p.342). Past studies have found that subjects were less susceptible to
negative information if products were classified as high involvement (Korgaonkar and
Moschis, 1982). Thus, high levels of product involvement will lead to a weaker negative
relationship between negative WOM and brand equity, and vice versa.

Product knowledge be categorized as consumers’ actual knowledge or perceived knowledge
of a product. This study will measure consumers’ perceived knowledge, which is what the
consumer thinks he/she knows about the product (Bone, 1995). Perceived knowledge is more
suitable for this study because consumers’ perceptions towards a brand are heavily influenced
by what they think they know about a product. It is posited that knowledgeable consumers
will be able to disregard information that they perceive to be inaccurate (Alba and
Hutchinson, 1987; Bone, 1995). Hence, high levels of product knowledge will lead to a
weaker negative relationship between negative WOM and brand equity, and vice versa.

Brand familiarity reflects the brand-related experiences accumulated by the consumer
(Sundaram and Webster, 1999; Alba and Hutchinson, 1987; Bone 1995). These include
exposure to the brand in advertisements or in a store, and the recognition of a brand name
(Sundaram and Webster, 1999). Researches have shown that brand familiarity has a
moderating effect on consumers’ attitude after exposure to WOM (Ahluwalia, 2002;
Sundaram and Webster, 1999). Hence, the impact of negative WOM will be reduced if the
object of evaluation is familiar (Ahluwalia, 2002). Thus, a brand with moderate levels of
brand familiarity will be used in this study.


Theoretical Framework and Hypotheses

The above literature review suggests that a relationship between WOM and brand equity may
exist, with moderating variables of product involvement, product knowledge and brand
familiarity as shown in Figure 1. Specifically, perceived quality and brand attitude are more
relevant dimensions of brand equity, given that they can be measured in a cross-sectional
study. Since this research seeks to examine consumers’ brand attributional responses, three
dimensions of WOM content – consensus, consistency and distinctiveness are included as the
dependent variables (Laczniak et al, 2001). In brief, the study seeks to investigate how
negative WOM will affect consumers’ perceptions and subsequently brand equity, after being
exposed to prescribed conversations from Web 2.0.

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Figure 1: Proposed Conceptual Framework


Source: developed for this research
Derived from this framework, several hypotheses can be proposed:
H1: Online negative WOM negatively affect perceived quality of the brand.
H2: Online negative WOM negatively affect brand attitude towards the brand.
H3: The effect of negative WOM on perceived quality will be weaker when the consumer
has higher levels of product knowledge.
H4: The effect of negative WOM on perceived quality will be weaker when the consumer
has higher levels of product involvement.
H5: The effect of negative WOM on brand attitude will be weaker when the consumer
has higher levels of product knowledge.
H6: The effect of negative WOM on brand attitude will be weaker when the consumer
has higher levels of product involvement.


Proposed Methodology and Preliminary Findings

The proposed research design will consist of two stages. In the first stage, exploratory
qualitative focus groups were used to determine the stimuli that will be used in the second
stage of an experiment, and to gather insights pertaining to customers’ perceptions towards
negative word-of-mouth in the context of Web 2.0. A total of four groups of Web 2.0 users,
were chosen to participate in the study in Adelaide. Each group included six to nine
participants. This is in accordance with Web 2.0 researches which showed that people aged
between 18 and 49 are most likely to turn to user generated content sites (Riegner, 2007;
Nielsen, 2009). The focus groups comprised a various range of gender, nationalities and
ethnicities, to represent the diverse Internet population. We displayed sample extracts with
negative comments on a brand from Facebook.com and asked the participants to comment on
their feelings towards the brand. This information will be used for the development of the
questionnaires utilized in the next phase.

The field experimentation method will be used in stage two, to test the causal relationship
between online word-of-mouth and brand equity. A fictitious brand will be used for the
experiment to control brand familiarity. As far, a survey instrument based on the focus group
findings have been developed, including all of the constructs proposed in Figure 1. The field
experiment design will involve a self-administered survey using personal interviews. The
survey respondents will be selected on the basis of systematic random sampling. It is
anticipated that approximately 200 responses will be sufficient for data analysis.

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Preliminary findings from the first stage of this study. The findings from the focus group
sessions revealed that consumers do actively search for non-commercial bias opinions prior to
making a purchase decision. For factual information about product attribute, a company’s
website is preferred. However, consumer-based websites like discussion boards, where many
consumers’ opinions are presented, are used to determine if the experience with the brand will
be a favourable one. Participants are also likely to look at many sites, to derive more
representative information.

Furthermore, the degree of consensus where many negative opinions coincide serves a
warning that a fault may exist with the product. Thus, after reading such forums, consumers
will be unlikely to purchase or even try the product due to the perceived risk involved. The
online search is used to narrow down their search for a suitable brand of product if they are
unsure of which brand to buy. The process of mentally removing undesirable brands happens
concurrently with the reading of online comments. This implies that negative messages
tremendously reduce the overall perceived value of a brand, and the subsequent purchase
behaviours. However, the trustworthiness of the online WOM is also dependent on other
factors such as the prestige and reliability of the website. Furthermore, detailed comments
with examples were seen to be more valid as it provided justifications, which would otherwise
be baseless comments. Interestingly, participants also stated that they would seek offline
WOM to confirm the negativity of a product.

Participants also agreed that it takes time to reduce the amount of negativity pertaining to a
brand of product. Consumers expect companies to be honest about these issues and not to
deny them because of the reality that consumers have been experiencing these problems. To
acknowledge and rectify the situation with solutions are seen to be good damage controls.
Respondents feel that these will help to retain customers and rebuild their trust, by showing
that the companies ultimately have their customers’ interest at heart.


Implications and Conclusions

The results of this study are relevant to both academics and practitioners. As consumers are
turning to Web 2.0 for non-commercial, unbiased information, it is imperative for companies
to understand the implications resulting from the shift of television as a dominant form of
mass media to Web 2.0, and its subsequent impact on branding strategies. With the ongoing
debate about the importance of social networking media, this study will provide qualitative
and empirical evidence to show the impact of these mediums on brand equity, to provide
more accurate information for marketers to make sound brand management decisions.

As with every research, there are bound to be limitations. This study did not account for all
the brand equity dimensions as suggested by Aaker (1991) and Keller (1993). Forthcoming
research can incorporate additional dimensions of brand equity and determine whether the
effects of negativity in Web 2.0 on products will diminish the positive effects of advertising.
Also, new trends in consumer complaint behaviour on Web 2.0 and specifically other
dimensions of WOM negativity such as distinctiveness and consistency should be
investigated further to provide more conclusive evidence. Finally, other dependent variables
such as brand loyalty and brand credibility should be included in future studies in this area.

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