• by Dave Balter , March 4, 2008

Let's say your greenest friend recommends the latest hybrid vehicle. Or a dairy-sensitive "foodie" suggests you try some new vanilla flavored soy milk. Or your frugal father-in-law steers you toward a particular variety of charge card.

Few would question the power of these types of recommendations. After all, they cut through advertising clutter with relevant advice from trusted sources. This elusive credibility led marketers to spend over $1 billion on word-of-mouth programs last year, despite the fact that nobody seems to agree on how to properly value an unscripted consumer interaction.

Because social marketing techniques trail broadcast and print media in terms of spend history, word-of-mouth programs are often measured against "traditional" metrics, such as message reach, coupon redemption, and test-and-control sales, as well some newer methodologies, such as Net Promoter scoring.

While word of mouth has been proven to be an effective spend based on these metrics, are they really the most reliable ways to gauge the efficacy of online and offline brand-related conversations? As the founder and CEO of word-of-mouth media firm, BzzAgent, I am asked these questions daily.

Our internal meetings on this topic invariably lead to heated debate and fresh ideas. It seems a shame to be doing this behind closed doors, and even with ROI being proven repeatedly, the advertising industry is clamoring for the right comparative value. Given that "participating in the discussion" has become the battle cry for social marketing, I thought we would invite all media professionals to dissect and discuss the ways word of mouth should be measured. Should a conversation be compared to a certain number of banner clicks? Is it a multiple of an impression? In other words: What exactly is a conversation worth?

In an effort to respond to the industry's demands, BzzAgent will distribute a series of brief white papers that explore these questions and related issues throughout 2008. We released our first paper today, titled Valuing Advertising's Original Medium: The Conversation.

Throughout this process, we are not seeking to be the authority on word-of-mouth valuation. We defer to the expertise of research-driven organizations, such as the Word of Mouth Marketing Association, to put forth a definitive metric. Rather, the goal of our papers is to provoke thought and stimulate discussion, imagination and scrutiny.

So where to begin? We all default to the familiar when facing a new challenge. In this case, the familiar is CPM, which is just what many marketers have been relying on when planning their social media spend.

In order to consider whether CPM is an ideal measure, one needs to consider how to calculate what a proper effective CPM might be for a word-of- mouth conversation. We begin with the simple correlation of a dialogue to an impression, and then layer on the additive values of word of mouth, such as premiums for customer targeting, value of a trusted source, length of engagement, and generational impact (or ripples of conversation).

Today's paper takes a deeper look at the idea of "the CPM of a conversation." Surely peer recommendations can be valued in terms of impressions, but is this how marketers should think about their investments? Does this rightly associate word of mouth with a relevant norm, or does it improperly constrict the value of a dialogue to an outdated metric?

If the former, the big, scary question looms: What is the proper effective CPM for word of mouth? $30? $300? $3,000?

The questions are now yours to answer. Have at it.