Keeping Up With the Joneses on Social Networks
A new Working Paper* published by Harvard Business School tries to answer the question of whether friends influence purchasing activity in social networks such as Facebook and comes up with a mixed answer.
Moderately connected users show a 5% increase in revenue due to social influence. However, high status, heavily connected users’ revenue declines by almost 14% due to these social effects.
This is consistent with the typical fashion cycle wherein opinion leaders or the elite in the fashion industry tend to abandon one type of fashion and adopt the next in order to differentiate themselves from the masses.
The paper’s results show three distinct user groups: a) Low status members (48% in the sample), who are not well connected to other members, experience little or no social effect and hence do not change their purchase patterns due to friends’ purchase behavior, b) Middle status members (40% in the sample), who are moderately connected, and show a strong positive effect when their
friends buy items and c) High status members (12% in our sample), who are the most well connected, but show a negative social effect.
“To understand how members strive for differentiation, we linked the purchase related activity of members with their non-purchase related activity. The group with negligible contagion effect contained members who are not well connected to other members as well as show little non-purchase related activity. The group with positive contagion effect constitutes members who exhibit a moderate level of non-purchase activity. They try to maintain their status by primarily making purchases as they fear that not doing so might undo their status. This is the typical ‘keeping up with the Joneses’ effect.”
“Finally, the group with negative effect contains well connected, high status members. These members show a very high level of non-purchase activity and their probability of purchase is lowered if other members around them are purchasing. This is consistent with the typical fashion cycle wherein opinion leaders or the elite in the fashion industry tend to abandon one type of fashion and adopt the next in order to differentiate themselves from the masses. As other members around them imitate their purchases to gain status, these high status members further differentiate themselves by pursuing non-purchase related activity.”
We also quantify the social influence in terms of changes in purchase probability and revenues. Our results show that middle-status users show, on average, a 5% increase in revenue due to social influence. In contrast, the high status group’s revenue declines by almost 14% due to these social effects.
“Our findings are relevant for social networking sites and large advertisers. The members in high status group have an influence on those in the middle status group for the diffusion of a new product. However, a successful diffusion in the middle status segment may make high status members lose interest in the new product.”
Do Friends Influence Purchases in a Social Network?
Raghuram Iyengar, Sangman Han, Sunil Gupta
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