How word-of-mouth saves the firm money

Have you ever had to hire a contractor to do some work?  You know that there are numerous good and bad contractors, if you want to see the bad you should watch one of my favorite shows, “to catch a contractor”.  If you’re scared of hiring a bad contractor (and most people are) then this hurts the good firms.  Good firms face skeptical consumers and have to spend more on marketing to signal their quality so that a person does not mistake them for a bad firm.  My colleague Andrew Crecelius (University of Missouri) and I recently examined how consumers choose a good contractor and our preliminary findings show that word-of-mouth goes a long way to influencing which firms consumers choose.  The bottom line is that a firm can save money by simply doing a good job because good word-of-mouth can decrease the cost of signalling that they are a good firm.  Our paper was recently accepted for presentation at the American Marketing Association Annual Conference in Las  Vegas (February 2016).

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