The Predict Study on Word-of-mouth Receiver’s Purchase Probability

Based on Logit Model

HUANG Chuan1, CHENG Aiwu2

1. College of Technology and Engineering, Lanzhou University of Technology, China, 730050
2. School of Management, Xi’an Polytechnic University, China, 710048
huangchuan0629@163.com

Abstract: To predict customer word-of-mouth we should first make sure whether the word-of-mouth
receivers will buy word-of-mouth information-related products or services in the future. In this paper,
the author drew on word-of-mouth communication and consumer behavior-related research to analyze
the factors which impact the potential receivers to purchase information-related products or services.
And then the author using the Logit model to build a prediction model of word-of-mouth receiver’s
purchase probability. The application results proved that the model proposed in this paper has a better
forecasting effect, and the model has a certain reference value in improving the measurement of
customer word-of-mouth value.
Keywords: Word-of-mouth receiver, Influencing factors, Purchase probability, Prediction model

1 Introduction
Customer word-of-mouth is a very important marketing element, with the extensive application of
Internet technology, enterprises increasingly recognized that the importance of consumer word-of-mouth
behavior. Also many scholars have called for playing greater emphasis on the word-of-mouth, therefore,
the measurement of word-of-mouth is increasingly becoming a hot topic of business and academia. But,
at present the study on the measurement of customer word-of-mouth is very few, in particular, its
methodology is still not perfect; on the other side, the existing empirical researches have obvious
limitations, most of the evidence are in Western countries, therefore, developing an effective system of
word-of-mouth measurement has important theoretical significance and practical significance. To
measure the value of customer word-of-mouth, we must first determine the probability that the receiver's
purchase the good or service. Therefore, the basic idea of this article is based on word-of-mouth
research literature, in analyzing the impact factors of the recipient potential purchase behavior to
propose a predict model of word-of-mouth receiver’s purchase probability. At last this paper uses the
data of Tongchuan mobile company to test the validation of the prediction model.

2 The concept and intension of word-of-mouth communication

Britt first indicated the effect of word-of-mouth to the consumers based on the literature of consumer
behavior and social science in 1966. This was the first time the word-of-mouth had been studied in the
consumer behavior field, then it is studied by scholars extensively. Arndt(1967)who was one of the
influential scholars of studying the influence of word-of-mouth to consumers’ behavior defined the
word-of-mouth as the oral, person to person communication between the senders and receivers, and the
receiver considerd the information of a brand, product / service reputation was non-commercial [1] .
Thisdefinition attempted to define word-of-mouth study area, emphasizing the word of mouth was the
oral, person to person transmission, and didn’t contain commercial purposes. Westbrook defined
word-of-mouth as the informal communication between consumers about some business or product [2].
This definition also emphasized the word-of-mouth was non-commercial, but it broaden the
communication style of word-of-mouth, he considered word-of-mouth was informal communication not
only mean it was oral communication. But the limitations of the definition were that it defined the
content of word-of-mouth as the communication about some business or products, actually the
word-of-mouth content not only includes these two aspects. Tax et al. thought word-of-mouth was the
informal communication between consumers about suppliers or their product/service which can be

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positive or negative [3]. Anderson defined word-of-mouth communication as informal communication of
individual’s opinion about product and service including positive and negative opinion, but it was
different from the formal complaint or appreciation to company [4]. The two authors’ definitions further
expanded the content of word-of-mouth and they considered word-of-mouth had positive and negative
nature that was word-of-mouth had two kinds of style: positive word-of-mouth and negative
word-of-mouth.
In addition, with the fast development of internet and e-business, the consumer word-of-mouth is
communicating faster and wider (Zinkhan et al.2003). If word-of-mouth is communicated on internet, it
becomes internet word-of-mouth—a kind of communication behavior of consumers share their own
experience, opinion and relative knowledge about some object or collect other consumers’ product
information and objects discussing by electronic media for non-commercial purpose. Sometimes
word-of-mouth is called electronic word-of-mouth or word-of-mouse. Taken together, word-of-mouth is
informal communication about their own or others’ experience of product and service and enterprise
relative information through mode of transmission such as face to face or telephone, tax, internet and so
on [5].
From the definition of word-of-mouth, we concluded that in the process of word-of-moth
communication there are two parties involved: word-of-moth communicators and receivers, so we
should consider the effect factors which affect receiver’s purchase decision from the aspects of
word-of-mouth communicator’s and receiver’s own characteristic.

3 The factors which affect word-of-mouth receiver’s potential purchase behavior

There are many factors affect word-of-mouth receiver’s potential purchase behavior. Florian(2004)
adopted customers’ expertise and the similarity of the word-of-mouth to measure the probability of
whether the potential customers would switch service suppliers when he studied word-of-mouth
communication’s effect to customer switching their service supplier[6]. This paper summarized five
factors which affect potential customers purchase probability from literature index.
The tie strength of communicators and receivers may affect receivers’ purchase probability. Bristor
(1990) states that a WOM network is "a social network consisting of a set of people who engage in
word-of-mouth, plus the relationships between them" (p65). The relationship between people is
essentially a force that works to bond them, represented by the construct of tie strength.” Consistently,
Money, Gilly, and Graham (1998) state that "tie strength is a multidimensional construct that represents
the strength of the dyadic interpersonal relationships in the context of social networks" (p79). Frenzen
and Davis (1990) identify closeness, intimacy, support, and association as the inherent interpersonal
dimensions of this concept. Brown and Reingen (1987) suggest that strong ties bear greater influence on
the receiver's behavior than weaker ties. This notion is further supported in the work of Frenzen and
Nakamoto (1993). Directly, under strength of strong ties, the word-of-mouth receivers will further rely
on the word-of-mouth senders. Most of the empirical studies about information source similarity were
done on the ground of advertisement. These studies supported the hypothesize that the influence of
similar communicators was strong than not similar communicators.(Feick,Higie,1992) On the back of
word-of-mouth, these studies proved that when the word-of-mouth senders and receivers were similar
(culture background, value opinion), the influence of word-of-mouth to receivers’ purchase decision
would increase.
The sender’s expertise also will affect word-of-mouth receivers’ purchase decision. Gilly(1998) proved
that the sender’s expertise has positive correlation to receiver’s purchase decision. Feick and Higie(1992)
pointed that the expertise could be explained as “the ability of performing the relative product business
successfully.” Absolutely, the experts’ word-of-mouth information will be more influencing. Gilly et
al.(1998) pointed that the experts of some particular product should deal with more information related
to products of purchase, so their opinions will be searched by more people. Moreover, the more
abundant of the experts’ knowledge the more effective others will consider their opinions of product or
brand. Bone (1995), Herr et al.(1991) proved that experts’ information source had stronger influence to
the common people’s information. Therefore we can consider that the higher of the word-of-mouth

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sender’s expertise level the stronger of the influence of word-of-mouth to receiver’s purchase decision.
The receiver’s own characteristic such as his expertise level will also has strong influence to
word-of-mouth communication results. Kiel&Layton(1981) found that the level of interpersonal
information seeking and product experience(measured by the pre-purchase times and used experienced)
have negative correlation. The customers will feel higher risk when they have less product experience.
From the perspective of information economy customers will obtain more from word-of-mouth
information seeking (Gilly et al., 1998). Customers will be affected less by word-of-mouth when they
have no impression about the brand; otherwise customers will more easily be affected by word-of-mouth
when they never know or purchase the brand (Herr et al. , 1991).
The receiver’s perceived risk has positive effects on WOM's influencing of the receiver's purchase
decision. (Walsh, 2003). Many researches indicated that the higher the perceived risk of buying a
product the higher the effect of WOM information on the receiver's buying decision (e.g., Murray, 1991).
Perceived risk has been described as the negative consequences that can arise from the purchase of a
product (Bauer, 1967). It can be defined as "subjective expectation of losses" (Dholakia, 1997, p161).
Categorization schemes for capturing the concept of perceived risk have typically included multiple
dimensions of perceived risk, such as financial, functional, social, psychological, time and security risk.
Perceived risk is a product-category variable, meaning that the purchase of different products is
typically associated with different degrees of perceived risk. Further, it is an individual characteristic, in
that the purchase of the same product can be associated with different levels of perceived risk by
different people. Zeithanl and Bitner(1996) pointed that there was higher risk in service purchase
process mainly because service is invisible, non-standard and always be sold without guarantee. For
example, customers may have higher risk when choose hospital service than restaurant service. This
paper adopts Florian’s study who divided perceived risk into two dimensions: function/financial risk and
social/psychology risk in his study of the effect of word-of-mouth on service switching[8]. Functional
risk refers to a consumer's perceived risk that the functional attributes of the product do not satisfy his
needs. Financial risk relates to the financial loss in case of a "bad" purchase or the availability of product
that offers a better price/quality ratio. Because a consumer will almost certainly perceive a financial loss
if the product does not satisfy his needs, it is not surprising that empirical research has found a strong
correlation between both types of perceived risk(Kaplan et al., 1974)[9]. Social risk refers to the
negative consequences potentially arising from the social environment of the consumer. For example,
buying a certain brand or product might not be accepted by his friends and acquaintances. The
psychological risk dimension relates to lower self-perception when the consumer has made a bad choice,
because such experiences place his ability to perform choice-related tasks successfully in doubt. Again,
a strong association has been found between these two risk dimensions, as a loss in social acceptance
should also lead to lower self-perception and inner dissatisfaction (Kaplan et al., 1974). Therefore, we
only distinguish between two risk dimensions in this paper, financial/functional and
social/psychological.
Last, the level of receiver’s actively seeking word-of-mouth also influences his purchase decision.
Actively seeking WOM is construed as the process of vigorously seeking and ultimately attaining a
message. It is understood to be attained by purposeful design and effort. Arndt(1967b) states that ”the
communicators and receivers of word-of-mouth are active, independent participants in the mass
communications process. The receivers often initiate product conversations by asking communicators
for information.” Consequently, a message that is actively sought will have a greater impact on the
influence of the sender’s WOM on the receiver’s purchase decision. So we can consider that the greater
the extent to which the WOM is actively sought by the receive, the greater the influence of the sender’s
WOM on the receiver’s purchase decision.
From the above literature overview analysis, we can conclude that the influence factors of customer
word-of-mouth communication effects mainly include five aspects as follows, see figure 1.

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 Ties strength

WOM sender’s expertise

WOM receiver’s
purchase WOM receiver’s expertise
probability

Perceived risk

WOM actively sought

Figure1 the influencing factors of customer’s word-of-mouth effect

4 The building of word-of-mouth receiver’s purchase probability predict model

Bayon, Bauer and Gutsche suggested use Logit model to calculate customer’s purchase decision which
is proved suitable to estimate purchase probability in customer behavior study. Florian and Tomas also
suggested use Logit model to calculate the probability of word-of-mouth receivers switching their
，
service suppliers. In view of their studies and considered the practicality this paper decides to use Logit
model to calculate word-of-mouth receiver’s purchase probability.
Logistic function which is also called increasing function[10]. Its expression is as follows:
1 1
P= =
1+ e ∑ i i 1+ e
− bx −z

Where Z = ∑b x i i
z
If we multiply e to the right side of the equation’s numerator and denominator we can get:
z
e
p=
1+ ez
Taking logarithm on both sides of the equation, we can get:
p
ln = z = ∑ bi x i
1− p
In this paper, whether word-of-mouth receivers purchase some product or service is a kind of two
classification, that is purchase(1) or not purchase(0). It conforms to the requirements of the model of
，
general regression analysis so we can use Logistic regression model to calculate the word-of-mouth
receiver’s purchase probability.
Florian and Tomas used three influencing factors to calculate the probability of customer switching
service suppliers: customer’s expertise, communicators’ similarity and receiver’s perceived risk. This
paper concerned five individual eigen value X included five factors: ties strength X1, word-of-mouth
expertise X2, word-of-mouth expertise X3, perceived risk X4, word-of-mouth actively sought X5. So this
paper uses logit model to measure receiver’s purchase probability(see formula 1):

log
pi
1 − pi
= α + β1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + β 5 X 5 （ 1）
Where Pi is the word-of-mouth receiver’s purchase probability.
、、、、
For X1 X2 X3 X4 X5 can’t be obtained directly, this paper calculated their value through questionnaire

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scoring. The detailed design as follows:
Calder, Phillips&Tybout(1987) pointed that using controlled experiment environment method could
reduce the disturb of random and irrelevant factors. But when the studied variables were difficult to
measure under environment, field settings would be more suitable which was very suitable to
word-of-mouth research, because the word-of-mouth communication data is difficult to obtain under
experiment environment [85]. Keaveney(1995) adopted retrospective data in her study. In her study of
service switching, first she let the participators answer their purchased service events in last six months,
then let the participators retrospect one of the nearest service switching behavior. Although the
questionnaire adopted the way of let respondents retrospect, the existed problem was reduced, because
the questionnaire was to achieved several goals(1) the respondents can choose a service switching event
by themselves, not confine their events in special industry; (2)asked the participators the nearest service
switching behavior avoided participators only describe the very extinguished thing; (3) the questionnaire
gave respondents enough time to recall the thing clearly(Voyer,1999).
Therefore, this paper also uses questionnaire investigated method, let the respondents retrospect one of
the word-of-mouth recommended experience and then take the word-of-mouth receiver’s reference to
answer the questionnaire.(detailed measure scale see fig1)

Table1 the measurement scale of every variable

Variable Detailed Indicators Indicators resources
Word-of-mouth 1. I am a layman in some product or service industry Harvir S.Bansal(2000)
sender’s expertise 2. I am very familiar with the purchase of some product or
service
3. I am experienced in some product or service industry
4. I am trained in some product or service industry
5. I am competent in some product or service industry
Word-of-mouth 1. The receiver is familiar with the function of some product Umesh&Stem(1993) ；
receiver’s expertise or service Brucks(1985)
2. The receiver is familiar with the price of some product or
service
3. The receiver is familiar with some brand
4. The receiver is experienced in some product or service
5. The receiver is an expert to the purchase of some product
or service

Tie strength 1.I am familiar with the receiver(for example education ；

Gilly et al. (1998)
background, hobbies) Frenzen&Davis(1990)
2. I am very familiar with the receiver
3.I will try my best to help the receiver solve his purchase
problem
4.I will discuss personal topic with the receiver
receiver’s perceived 1.The receiver considers that purchasing some product is （ ）
Florian 2004
risk consistent to his expectation and image
2. The receiver considers that it is worthwhile to purchase
some product of service
WOM actively 1.The receiver actively asks me some product information Harvir S.Bansal(2000)
seeking 2. The receiver asks me several times of some product
information before purchasing

5 Empirical analysis
This paper takes ShaanXi mobile communications limited company TongChuan Branch as the study
object. The company mainly operates mobile phone communications business, IP telephone, internet
connect and so on. There are seventy employers in the company. And there are three branch departments:
：
HongQi, YaoZhou, YiJun. There are five functions of the ministry general department ,marketing
department, internet department, financial department, VIP customer service department. To the end of

13
2004, there are 110,000 customers in the TongChuan company and its total income over 7,600 million
Yuan.
The research object of this paper is part of the VIP customers of TongChuan Company. This paper
mainly uses the questionnaire and interview surveying methods. Because TongChuan Company’s VIP
customers are serviced by customer managers one to one, so the customer managers are familiar with
their customers. Therefore the questionnaires can be given out to VIP customers by customer managers.
A total of 100 questionnaires were distributed. There are 80 usable forms among the 86 that were
returned. The effective recovery is 93%. We use SPSS13.0 to analyze the questionnaires and get the
final model as follows:
Pi
log = −1.275 + 0.948 X 1 + 1.452 X 2 − 1.888 X 3
1 − Pi (2)
− 1.008 X 4 + 1.076 X 5
To predict some word-of-mouth receiver’s purchase probability, we need to take the scores of sender’s
expertise, ties strength, receiver’s expertise, perceived risk and actively WOM seeking five variables
into formula 2, then we can get the customer’s potential purchase probability.

6 Conclusion
Customer word-of-mouth value is one of the important components of customer asset. To predict the
customer’s future word-of-mouth value first we need to confirm the word-of-mouth receiver’s purchase
probability. This paper explored the problem through theoretic analysis and empirical test methods and
concluded that there are five mainly factors influenced word-of-mouth receiver’s purchase behavior: ties
strength, sender’s expertise, receiver’s expertise, receiver’s perceived risk, actively WOM seeking and
this paper used Logit model to build a predict model of word-of-mouth receiver’s purchase probability
and gave the methods to measure the parameters in the model. At last this paper tested the validity of the
model, and the result show that the predict effects were well which lay the foundation for the
measurement of word-of-mouth value.
However, although this paper made a little breakthrough in predicting word-of-mouth purchase
probability, there are also many problems for further study. For example the application of the proposed
model in this paper is also limited. We will go on exploring in this subject to improve the above model.

Science project:
National Natural Science Foundation project: Customer assets accounting measurement research,
project approval number is 70672116.

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