Word-of-mouth (WOM) marketing is the effort to create, encourage, or make it easier for people to share opinions and recommendations about a business, product, or service. The Centers for Disease Control and Prevention (CDC) describes it as an unpaid form of promotion, and that boundary matters most. A company can shape the conversation, but the recommendation itself comes from the people who make it. The moment a reward, a sponsorship, or a review request enters the picture, disclosure and platform-rule obligations follow.
What is word-of-mouth marketing?
The CDC defines WOM marketing as “an unpaid form of promotion in which people tell others how much they like a business, product, or service.” That is the everyday meaning: a neighbor recommends a bookkeeper, a coworker tells you which credit union handled a mortgage smoothly, a customer posts that a tax preparer caught a missed deduction.
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The Federal Trade Commission (FTC) uses a narrower term in its Admongo glossary, “viral or Word-of-Mouth Marketing.” There it means an ad intended to spread from person to person through formal or informal social networks. A funny video built to be forwarded is an example. The two definitions fit together once you separate spontaneous talk from deliberate design. Ordinary WOM can arise on its own. A campaign may intentionally encourage or seed sharing. Calling every referral program “organic” misdescribes it.
What is the difference between word-of-mouth and referral marketing?
These terms overlap, but they are not interchangeable. The table below separates the four forms that come up most often, using the comparison points that matter for a small business or financial services firm deciding how to proceed.
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| Form | Who starts the communication | Incentive involved | Visibility | Can it be measured reliably? | Main disclosure or platform obligation |
|---|---|---|---|---|---|
| Organic WOM | Customer, independently | None | Usually private conversation | Hard to attribute | None arises from the customer’s own unprompted comment; if the business later pays for, reposts, or amplifies it, the rules below apply |
| Encouraged WOM | Business makes sharing easier or prompts feedback | Not required by definition | Private or public | Partly | Claims must be truthful and evidence-based |
| Referral marketing | Customer introduces others through a trackable program | Often a discount, free product, money, or another benefit | Usually private, one recipient at a time | Yes, through tracking | Disclose the material connection where the recommendation appears |
| Online reviews and social endorsements | Business solicits, or customer posts publicly | May be restricted by the platform | Platform-hosted and public | Review volume and quality can be tracked; attribution varies | Check each platform’s rules before soliciting or incentivizing; disclose material connections |
The categories and comparison points are editorial framing. The CDC and FTC sources do not define “encouraged WOM” or “referral marketing” as formal legal categories. What the FTC sources do establish is the importance of truthful advertising, disclosure of material connections, and platform rules for review solicitation.
How does word-of-mouth marketing work?
The mechanism starts with a customer experience that is good enough to repeat, travels through personal and online networks, and shapes the next person’s decision. Nielsen’s Vice-President of Global Consumer Insights, Sue Temple, put the business case this way: “Word of mouth has always been and remains one of the greatest enablers for marketers in the battles for consumers hearts and minds, and it is crucial to understand the way you can leverage its opportunities for your brand.”
Nielsen’s survey findings are the most-cited numbers on this topic, but they are historical and must be read with their dates and samples attached.
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| Finding | Publisher and year | Scope to keep with the number |
|---|---|---|
| 58% said word of mouth influenced them highly, compared with 46% for social media | Nielsen, Real Life vs. Digital Life report, 2020 | Date-specific; respondents from the survey population described in that report, which covers global or internet-access samples rather than every consumer |
| 71% said real-life conversations affected their purchasing decisions | Nielsen, 2020 | Same survey population and date as above |
| 84% of global respondents said they trusted word-of-mouth recommendations from friends and family | Nielsen, 2013 | Global respondents; more than a decade old and not a measure of current sentiment |
| 84% said recommendations from friends and family prompted action at least some of the time | Nielsen, 2013 | Same 2013 survey; “at least some of the time” is the wording the figure uses |
| 77% identified advice from family and friends as persuasive when seeking information about new products; Nielsen ranked it the most persuasive of 21 sources reviewed | Nielsen, 2013 | Same 2013 survey; describes persuasiveness when seeking product information, not purchase outcomes |
Two points follow. First, these figures show that personal recommendations have historically carried weight; they do not prove that any particular campaign will produce a given lift. Second, Nielsen’s 2020 findings indicate that people draw on both digital and real-life discussion, and the relative influence of each varies by country and audience.
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How can I get customers to recommend my business?
The following approach runs in sequence, starting with the product itself. None of these steps guarantees that a message will spread.
Deliver an experience worth discussing
Customers talk about experiences that were reliable, surprising in a useful way, or solved a problem they had been dreading. Nielsen’s Sue Temple connects positive experiences with customers sharing within their personal networks. Before any outreach, check whether a customer would describe your service to a friend in a single sentence. If the answer is no, a referral program will amplify a weak story.
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Make sharing easy
Give satisfied customers a clear, low-friction way to recommend you, refer someone, or leave a review. A visible link in a receipt email, a short text with a personal referral link, or a review page that is easy to find all count. Asking for feedback is different from choosing which feedback to display. A business that solicits opinions from every customer and then shows only favorable ones is misleading the people who read the results.
Use real customer stories with permission
Authentic stories work best when they carry context: what the customer’s situation was, what they did, and what happened. Get permission before publishing a name, photo, or account details. Avoid scripted claims that suggest every customer will get the same result. A story about a single client who paid down a balance faster is not evidence that all clients will, and advertising claims about results need to be truthful and supported by evidence.
Offer referrals transparently
If a referrer or a recipient receives money, a discount, a free product, or another benefit, make that connection clear where the recommendation appears. The disclosure belongs with the endorsement, not in a separate terms page. The compliance section below explains what counts and how to present it.
Rank #4
Treat online conversation as a channel, not a guarantee
Public platforms can extend a satisfied customer’s voice, but they can also amplify criticism. Nielsen’s 2020 report shows that people use both digital and in-person conversation, so a plan that ignores offline recommendations is incomplete. Decide which channels your audience actually uses rather than assuming that a viral post will do the work.
What are examples of word-of-mouth marketing?
- Organic WOM: A customer tells a colleague about a helpful local service without being asked or rewarded.
- Review solicitation: A business asks all customers for honest feedback and makes its review page easy to find. Follow the platform’s rules and avoid misleading practices.
- Incentivized referral: A customer shares a referral code and receives a discount after a successful referral. Disclose the reward when making the endorsement.
- Viral or WOM advertising: A funny brand video is designed for people to share through social networks. This matches the FTC glossary’s sense of the term.
Incentives, reviews, and endorsements: what must be disclosed
Most compliance problems in WOM marketing come from three situations: an advertising claim that cannot be supported, a payment or perk that is hidden, and a review that the platform or the reader would not expect. These are U.S.-focused FTC principles, applied to general business promotion.
Advertising claims must be truthful
The FTC’s advertising guidance states: “Under the law, claims in advertisements must be truthful, cannot be deceptive or unfair, and must be evidence-based.” A testimonial does not change that standard. If a story implies a result, the business needs evidence that the result is typical or must say that it is not.
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Disclose material connections where the endorsement appears
FTC influencer guidance says a material relationship can include payment, free or discounted products, employment, or personal or family ties. The disclosure should be placed with the endorsement, be easy to see, and be understandable at a glance. A profile bio or a disclosure hidden behind a “more” click does not meet that standard. A person also cannot describe an experience with a product they have not tried.
Check platform rules before soliciting or incentivizing reviews
The FTC notes that some review platforms prohibit reviews from people with personal or financial connections to the business, or from people who received an incentive. Misleading consumers about products or services is unacceptable regardless of platform rules. Do not assume that offering an incentive makes a review acceptable; the rule depends on the platform and the disclosure.
Avoid the common failures
- Promising that a campaign will generate word of mouth or a specific number of referrals.
- Creating testimonials that the customer did not write or that describe an experience the customer did not have.
- Presenting a reviewer or influencer as independent when a payment, free product, or family tie exists.
- Hiding a referral reward in fine print or a separate page.
How to measure whether it is working
Track the outcomes that fit the program you run. Useful measures include referral participation, attributable new customers, review volume and quality, and retention where your systems can report it reliably. These are suggested operational measures for a business, not metrics established by the cited Nielsen, CDC, or FTC sources. Attribution from referral codes is usually cleaner than attribution from organic conversation, which is why the table above separates them.
Scope and limits of this guidance
The FTC and CDC material used here is general U.S. guidance, not individualized legal advice. If your business sells loans, investment products, insurance, or advice, sector-specific disclosure rules and licensing requirements apply in addition to the general principles above, and this article does not address them. Nielsen’s figures describe survey populations at specific points in time, so treat them as evidence of how personal recommendations have influenced buyers, not as a current benchmark for your market.
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