| By: |
Zheyin (Jane) Gu (University of Connecticut, School of Business, Marketing Department, 2100 Hillside Rd, Unit 1041, Storrs, CT, 06269.);
Yunchuan Liu (University of Illinois, Urbana-Champaign, 415 Wohlers Hall, 1206 South Sixth Street, Champaign, IL, 61820, (217) 244-2749) |
| Abstract: |
We model consumer social networks as information collection media and examine
two major issues: first, how consumers construct product fit signals based on
product feedbacks collected from their social connections to assist with their
purchase decisions, and second, how a retailer can benefit from setting up a
digital platform and helping consumers collect more product feedbacks on
social networks. Our analysis identifies two important structure features of
consumer social networks that affect the outcome of consumer social learning:
social group inter-connectivity and overall social connectivity. In
particular, when the consumer social network is not well-connected,
characterized by low social group inter-connectivity and low overall social
connectivity, with more product feedbacks collected on social networks
consumers are more likely to form informative prior beliefs about which
product has a good fit. In contrast, when the consumer social network is
well-connected, characterized by either high social group inter-connectivity
or high overall social connectivity, more product feedbacks collected on
social networks are more likely to constitute uninformative product fit
signals and leave consumers uncertain about which product has a good fit.
Furthermore, our analysis shows that a retailer's incentive to set up a
digital platform and help consumers collect more product feedbacks on social
networks depends on the supplier market structure as well as the structure of
consumer social networks. In particular, a big retailer that carries
horizontally differentiated products offered by competing manufacturers has
incentive to facilitate consumer social learning on well-connected social
networks and when without retailer assistance consumers still collect product
feedbacks from a good number of social connections. The big retailer's
activity of facilitating consumer social learning can also enhance total
channel surplus. In contrast, a small retailer that carries product(s) offered
by a single manufacturer has incentive to facilitate consumer social learning
only on social networks that are not well-connected and when without retailer
assistance consumers only collect a small number of social feedbacks. And the
total channel efficiency suffers when the small retailer withholds from
facilitating consumer social learning. Our result highlights the unique motive
of big retailers to embrace the digital era when internet, mobile networks,
and social media have profoundly changed consumers' shopping habits as well as
the unique contribution big retailers bring in channel efficiency through
their efforts of facilitating consumer social learning. |
| Keywords: |
Consumer Social Learning, Social Networks, Retailing, Game Theory |
| JEL: |
M31 |
| Date: |
2014–09 |
| URL: |
http://d.repec.org/n?u=RePEc:net:wpaper:1402&r=mkt |