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Do friends influence purchases in a Social Network?

Harvard Business School Case Study (Working Paper)

February 26, 2009

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Here is an interesting find on twitter (rt@agotthelt), which looks to be a working paper aimed for publishing as one of the those famous Harvard Business School Case Studies. This is an academic paper with a scientific approach and lots of statistics to back up its findings.

Note that Cyworld is the sample for this study. Cyworld is a social media/networking/virtual world environment that was set up in Korea so there may be cultural influences to purchase behaviour that does not translate to western cultures. In fact, Cyworld has recently shut down operations in the US. See these articles from Tech Crunch regarding the launch of Cyworld in 2006 and the demise. Note the date of the study is listed several months after the date of this paper as well.

I don’t mention these points to discredit the study, I only suggest that a similar study needs to be conducted in different types of social media contexts and samples to make the sample more applicable in a broader sense. Case in point, those who like Facebook may not go for MySpace and those who go for Facebook may not go for Cyworld and so on…

That said, this kind of study is fascinating and goes deeper than the mass of superficial repurposed news bytes on the web. The researcheers even apply a form of segmentation to purchasers as an added bonus. I posted the abstract of the paper below and also provide a download link for the paper.

PLEASE COMMENT IF YOU HAVE ANY OPINIONS.

Download Paper

ABSTRACT

In this study we empirically examine this issue. Specifically we address three questions – do friends influence purchases of users in an online social network; which users are more influenced by this social pressure; and can we quantify this social influence in terms of increase in sales and revenue.

[To address these questions we use data from Cyworld, an online social networking site in Korea. Cyworld users create mini-homepages to interact with their friends. These mini- homepages, which become a way of self-expression for members, are decorated with items (e.g., wallpaper, music), many of which are sold by Cyworld. Using 10 weeks of purchase and non-purchase data from 208 users, we build an individual level model of choice (buy-no buy) and quantity (how much money to spend). We estimate this model using Bayesian approach and MCMC method.

Our results show that there are three distinct groups of users with very different behavior. The low-status group (48% of users) are not well connected, show limited interaction with other members and are unaffected by social pressure. The middle-status group (40% users) is moderately connected, show reasonable non-purchase activity on the site and have a strong and positive effect due to friends’ purchases. In other words, this group exhibits “keeping up with the Joneses” behavior. On average, their revenue increases by 5% due to this social influence. The high-status group (12% users) is well connected and very active on the site, and shows a significant negative effect due to friends’ purchases. In other words, this group differentiates itself from others by lowering their purchase and strongly pursuing non-purchase related activities. This social influence leads to almost 14% drop in the revenue of this group. We discuss the theoretical and managerial implications of our results.]

Cheers,

Rick Speciale

MyCMO – Director

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