The key factor that makes word of mouth (WOM) marketing so successful is that it works on the basis of unbiased recommendations from known sources. Those two terms – unbiased and known – are very important in making WOM marketing work.

Word of mouth marketing functions on the basis of trust – you either trust the recommendations given to you by your friends and family or you don’t. The criterion for trusting these recommendations comes from those two metrics: whether the recommendation is unbiased (that is, no ulterior motive involved) and whether the recommendation is from a known source (so you can evaluate if that source’s judgment can be trusted or not).

For example, let’s say that my friend Allen recommends a restaurant to me which he has just found. His recommendation would be unbiased because I know that he doesn’t have any financial benefits if I go eat there and that he’s telling me about this new place to eat because he enjoyed it so much. This recommendation would also be coming from a known source – I’ve eaten out with Allen several times and I know that he has good taste.

Unbiased and known sources – so you can trust these recommendations and act on them.

The mystery link between social networks and search engine marketing

By the way, to sidetrack for a second – do you recognize a familiar pattern here? Search engine optimization – especially when it comes to Google and building links – works on a similar basis. Consider this phrase:

The best recommendations are those that are unbiased and come from highly trust-worthy sources (that is, sources known to be trustworthy from past experience).

What is an online social network?

A social network is essentially, at the most basic level, a collection of people you know and are in contact with. In school this would all the classmates you know. At work your social network would include everyone you come in contact with. Regular contact evolves into stronger links within that network.

Now if you bring this concept online, what do you get?

Early online social networks are your forums, email lists and chat rooms. Forums in particular have stood the test of time and still are one of the most powerful online marketing tools if you know how to work them.

Social networks thrive on an exchange of information, of ideas and of resources. A forum is most vibrant when new ideas are constantly being discussed and members are busy in contributing to the common information pool by sharing their experiences.

One of the reasons social networks have been so successful is because they give members a chance to part of something bigger and more important than themselves. Any social network – be it an old-style forum, a community built around a blog or a more modern incarnation such as MySpace or Orkut – can be successful only when its members are enthusiastic enough to participate in the conversations and exchange of ideas taking place.

And this participation must happen without financial rewards. I say “must” because for the system to remain useful and unbiased, all monetary incentives have to be removed.

Have you heard about MySpace? It recently proclaimed itself as the most popular website on the Internet. It is, without doubt, the biggest social network around.

Seen Digg? By making user evaluations (voting) of news items the core of their “product”, the Digg owners have built a powerful social network that is also one of the most effective tools for marketing your business.

What about YouTube? A community-based video hosting service that has built its appeal around open sharing and discussion of uploaded media. The best part about YouTube is that they have mashed together digg-like functionality with the society’s need for unadulterated, unfiltered video content.

MySpace, Digg and YouTube are three of the biggest success stories of the Internet in the last year. And they are all social networks.

And they all are indicative of a shift in marketing paradigms from viral marketing to word of mouth marketing.

The difference between viral marketing and word of mouth marketing

Viral marketing, the epidemic spreading of news and information, has taken most of the limelight in marketing circles recently, but with the emergence of social network marketing and the wild success of social networks in recent years, that is changing rapidly.

Due to the nature and structure of online social networks, word-of-mouth marketing is poised to unseat the currently favored viral marketing tactics that rely heavily on offering an incentive to pass along the information.

Instead of offering a commission or a prize for referring someone else to your site, online social networks stimulate conversations between the people who are interested in your topic and provides them with the platform needed to share your message without a financial reward.

Word-of-mouth marketing is highly effective because the message comes from a person that the receiver already has an existing relationship with – someone who they view as a trusted source and valued opinion.

The beauty and simplicity of word-of-mouth marketing is that the transmission of your message can be rather simple in nature.

The most common form of transmission is through a recommendation; where celebrities and music artists have risen to super stardom literally overnight based simply on the recommendation of one to another promoting that they go see a movie they are in or listen to their new song.

This spreading of your message is powerful and infectious because the communicator of the message has no ulterior motive in doing so. They simply share the resource with someone else because of the benefit they've received from using it themselves or because of the sense of satisfaction they get from providing the valuable resource that person could use.

To understand how social network marketing really works, you have to understand how word of mouth marketing works first. And that is where Seth Godin’s ‘flipping the funnel’ idea comes in.

Flipping The Funnel

Instead of focusing on the classic marketing funnel where customers go into the funnel and are shifted out through various offerings of increasing value, the flipping the funnel technique has quite a different aim.

Through your normal marketing and promotion efforts, you have the ability to turn strangers into friends and friends into customers. Normally, you would then sift your customers through the funnel until they fall out at the stage where they are no longer willing to make additional purchases.

That focus is singular and does nothing to leverage the friends that your customer is already exposed to that they could bring into your funnel. During this stage, your customer becomes your salesperson and the act of flipping the funnel is complete.

For most businesses, their friends and customers are there most underused resource, focusing instead on generating new sales and prospects through a paid sale force or group of affiliates who pale in comparison numbers wise to the people who've purchased your product and gained something from its knowledge or use.

It is these people that you want on your side giving you more exposure than you could ever dream of because the cost of continually filling the funnel with more and more people is becoming both more expensive and increasing difficult to achieve.

By flipping the funnel, you provide your friends, customers, and website visitors with the tools they need to empower them and provide them with the ability to share your resource, product, service, or website with others.

Flipping the funnel gives them a megaphone that they can use to champion your cause and turn your website into a traffic magnet.

It's providing them with the leverage they need to expose your solution to as many people as possible, based simply upon their desire to share a valued resource with anyone who will listen.

All that a stranger needs to become your salesperson is the platform to share your message with as many people as possible, and an online social networking site based around your niche topic is the perfect tool to give them the power to speak out and be heard.

The billion dollar question now is: How can you use social networks to promote your business?