Honesty is the Best Policy: The Effects of Disclosure in Word-of-Mouth Marketing

Marketers increasingly provide incentives to everyday consumers in exchange for generating buzz about their brand. The problem is that incented agents do not always disclose this relationship, and marketers fear that disclosure will reduce the technique’s effectiveness. This paper examines how disclosure affects consumers’ response to word-of-mouth (WOM) marketing. Compared to seemingly organic WOM, can disclosure of the agent-brand relationship benefit the brand if it occurs concurrently with the recommendation? What are the consequences if an agent fails to disclose and the consumer learns about the subterfuge later? Findings from two experiments suggest that honesty is indeed the best policy regardless of whether the agent is talking to a friend or a stranger.