Consumers are skeptical of big companies and corporations during economic crises, but word-of-mouth marketing can rebuild trust and boost revenue for smaller businesses and freelancers.

The pandemic has caused an unprecedented shift in the way we live, work, and consume. As a result, businesses of all sizes face the challenges of an uncertain economic future.

Word-of-mouth marketing provides promise for businesses during uncertain times because it fosters consumer trust. In my role as a business content writer for fortune 500 companies, I’ve seen word-of-mouth marketing prove itself as a top strategy for companies that want to get and stay ahead, regardless of circumstances.

Here’s a look at how word-of-mouth marketing works and why it’s powerful right now. These data-based conclusions will demonstrate why your business should take advantage of word-of-mouth marketing sooner than later.

Customers Distrust Traditional Advertising

The sudden nature of the 2020 economic downturn illuminated how quickly governments and corporations can fall into turmoil. This left consumers to their own devices. It reflected a similar sentiment to what previous economic crises have shown: skepticism and mistrust in business.

Today’s consumers are wary of corporations and have a keen eye for detecting sales pitches. This is true both for overt advertising formats, like billboards and banner ads, and inadvertent advertising formats, such as branded content marketing and native social media ads.

The extent of consumer distrust in traditional advertising is demonstrated in the 2020 Dimension Study. This research is presented by Kantar, a data, insights, and consulting company. When respondents in the survey were asked which formats they trust most for information on brands and services, all respondents ranked advertising as the least trusted format (out of eight total formats).

The following chart compares how consumers rank the trustworthiness of different media forms.

As shown in this chart, consumers ranked friends and family as the topmost trusted source of brand information. Review sites were ranked second on the list. News organizations and informative websites were ranked as the third most trusted source.

Such data shows that traditional advertising tactics have less impact than in previous years. Companies that want to stay afloat during economic crises, including the one caused by Coronavirus in 2020, must respond strategically, providing the information customers need in the format they most prefer. One way to appeal to customers in those troubled times is by gaining social proof with the company’s advertising efforts. It gives your brand credibility and builds trust.

How Word-of-Mouth Marketing Works

People are inspired and motivated to spread awareness of a brand or the product when it has helped them in some way. In fact, 71 percent of consumers reported that they recommended a brand to a friend or family after a great experience with it. This was shown in the 2018 Chatter Matters word-of-mouth marketing report by Convince and Convert, a content consulting firm founded by marketing and customer experience expert Jay Baer.

When a consumer gets recommendations from a friend or family member on a product or service, it’s called word-of-mouth marketing. Traditionally, word-of-mouth marketing is triggered by organic experiences with a brand.

For example, let’s say Mary is struggling to find a natural, effective dog shampoo for their puppy. She speaks to her sister, Ellen, about the problem. Ellen, who also owns a dog, is eager to suggest her favorite natural dog shampoo. Mary tries the same shampoo and finds it so effective that she continues to share the word with her friends—which continues the word-of-mouth marketing phenomenon.

This is a classic example of organic word-of-mouth marketing. In this instance, the dog shampoo didn’t purposefully ask Ellen to tell Mary about the shampoo. The organic word-of-mouth marketing was prompted simply because the shampoo company maintained a high-quality product.

Word-of-Mouth Marketing Sustains Business During Crisis

Customers trust their friends and family members to provide helpful information on brands and products. In a recent Nielsen Global Trust in Advertising report, 83% of global respondents said they somewhat or completely trust recommendations from a friend.

As demonstrated in the graph below, consumers trust recommendations more than consumer opinions or editorial content.

Such data is important for understanding the effectiveness of a word-of-mouth marketing strategy to overcome the challenges of an economic crisis. A strategy focused on cultivating trust through friend and family referrals benefits companies in three core ways.

1. Attracts Loyal, High-Value Customers

Word-of-mouth marketing attracts valuable customers. These customers bring in twice as many new customers as those garnered through traditional formats. They also add twice the lifetime value, according to a report that compared word-of-mouth marketing and traditional advertising.

Moreover, each new customer acquired through word of mouth marketing provides a 60% ROI over a 6-year period. This data is shown in a case study published by Wharton Business School at the University of Pennsylvania. The impact on ROI is amplified by the low cost of customer acquisition. Plus, the investment in word-of-mouth marketing is much lower than traditional advertising formats.

Businesses that focus their resources on word-of-mouth marketing formats, rather than traditional advertising, stand to double their return on investment. In an economic downturn, creating loyal, high-value customers is strategic and effective. It ensures that a business still has paying customers amidst uncertainty, keeping them afloat regardless of a potential sales slump.

2. Enhances Innovation and Competitive Edge

Companies of all sizes can continue to innovate existing offerings and release new products, even during economic crises. Research from BCG shows that word-of-mouth marketing programs amplify revenue gains for existing products by 10-20 percent. Yet for new products, word-of-mouth marketing can elevate revenue up to 100 percent.

This means that companies can use a word-of-mouth marketing strategy to significantly reduce the risk associated with product development during an economic crisis. At the same time, they greatly increase potential revenue gains. This provides a unique opportunity to get ahead of competitors. Why? Because traditional business strategies advise companies to scale back operations and halt product development during economic uncertainty.

In contrast, businesses can use word-of-mouth marketing to confidently deliver new products and services to their audience, all while gaining a competitive edge and boosting ROI.

3. Boosts Sales Despite Economic Slowdown

Word of mouth marketing has been shown to increase consumer conversations around brands, which increases the likelihood of purchase. Specifically, in-person and digital brand recommendations account for 13% of all consumer sales. This represents annual consumer spending power of $6 trillion. In high-end and luxury markets, this impact is even more significant. Here, word-of-mouth marketing accounts for 20% of sales.

This data was extracted from a consumer word of mouth study by the Word of Mouth Marketing Association—the official trade organization dedicated to studying word-of-mouth and social media marketing. Word-of-mouth marketing is already a significant source of brand awareness. Companies can leverage the purchasing power of word-of-mouth marketing, especially in high-paying markets, regardless of economic slowdown.

Word-of-Mouth to Elevates Brands in Crisis

Economic uncertainty breeds consumer distrust of corporations and businesses. This makes it challenging for companies to market and sell to consumers using traditional advertising formats, which are already proven to be less effective in the current age.

Fortunately, word-of-mouth marketing has emerged as an effective way for companies to achieve long-term goals, but especially during economic crises. In particular, word-of-mouth marketing has been proven to attract high-value customers, enhance product innovation, and boost sales despite an economic downturn.