Word of mouth in social learning: The effects of word of mouth advice in the smartphone market

Objectives The objective of this thesis is to examine word of mouth advice and its relationship with product sales and market shares in the context of the smartphone market. The thesis aims to determine the key properties of valuable word of mouth advice from a consumer’s perspective and seeks to identify the effects of sources and transmission methods on the valuation of word of mouth advice. Furthermore, the thesis aims to clarify the market wide effects of positive word of mouth on product market shares through empirical analysis of the effects of word of mouth advice on operation system market shares in the smartphone market. Framework, data and methods The methodology of the thesis is based on building a framework for empirical analysis by reviewing relevant literature on social learning and word of mouth advice and subsequently examining the individual level effects, as well as the market wide effects, of word of mouth advice though empirical analysis of smartphone market related data. The data utilized for the empirical analysis section of the thesis consists of two datasets including survey questionnaire responses and sales figures of smartphone handsets in various markets. The empirical methods utilized in analyzing the datasets include the Heckman selection model as well as the ordinary least squares method, the fixed effects estimation method and the random effects estimation method. Findings The main findings of this thesis are that, in terms of the determinants of valuable advice, the effectiveness of word of mouth is highly correlated with the strength of the social tie between the advice giver and the receiver of the advice. A closer social tie implies a higher rating for the advice received. Other factors contributing positively towards a high probability of a high valuation for advice are active search for advice and the receiver’s familiarity with the subject of advice. Also, a variety of socio-economic factors such as gender and the place of residence of the respondent were found to result in in a higher probability for favorable ratings for advice. In addition to this, in terms of the market wide effects of positive word of mouth, the thesis finds strong correlation between high shares positive word of mouth and high market shares for smartphone operation systems. The findings however experience large variations across markets and more research will be required to completely uncover the nature of the relationship between word of mouth and product sales. While the type of herd behavior implied by social learning theories certainly seems possible as a real world market outcome, more research in the field is needed to determine the actual strength of the phenomenon and the factors contributing to its origins.