Do Friends Influence Purchases in a Social Network?

Article: http://www.hbs.edu/research/pdf/09-123.pdf

Here's an article published by the Harvard Business School that address this question.

As we all are well aware, Facebook and MySpace have witnessed a rapid growth in their membership. Some of these businesses have tried an advertising-based model with very limited success. However, these businesses have not fully explored the power of their members to influence each other’s behavior. This potential viral or social effect can have significant impact on the success of these companies as well as provide a unique new marketing opportunity for traditional companies.

The results published in the paper show that there is a significant and positive impact of friends’ purchases on the purchase probability of a user. Even more interestingly, it was found that there are significant differences across users. Specifically, we find that this social effect is zero for 48% of the users, negative for 12% of the users and positive for 40% of the users. Further examination reveals systematic differences across these user groups. Users who have limited connection to other members are not influenced by friends’ purchases. However, positive social effect is observed in moderately connected users. These users exhibit “keeping up with the Joneses” behavior. On average, this social influence translates into a 5% increase in revenues. In contrast to this group, highly connected users show a negative effect of contagion. To maintain distinctiveness, these users tend to reduce their purchases of items when they see their friends buying them. This negative social effect reduces the revenue for this group by more than 14%.

Cool post. In fact, strategies that target certain demographics based on their buying patterns were heavily used by Karl Rove in 2004 to get George W Bush re-elected. It is outlined in this really interesting article in the NYT: http://www.nytimes.com/2008/04/16/dining/16voters.html?fta=y

So the job of a political strategist is to identify segments of the electorate based on demographics like age and income and them mixing in consumer information. Once they find small groups of like minded people, they can use diffusion of innovation strategies to effectively send campaign material to potential supporters. In this way they can potentially get voters to vote for their candidate while avoiding the inefficient and ineffective mass mailings.

This is an interesting blog post from the Social Times website about a study of the influence of blogs on purchases.
http://www.socialtimes.com/2008/10/bloggers-more-influential-than-friends-for-purchase-decisions/

This blog post talks about a study that found that "avid blog readers" are more influenced by blogs than by friends on their purchases made. Clearly, the only group for which this can be true is people who read blogs. However, it is interesting to consider the prospect that a person can be influenced more by a blog than a person with whom he/she has a friendly relationship with. In addition, bloggers have no credibility and are for the most part unknown by the public. A positive of a blogger is that he/she is objective, and a person has no idea of whether a blogger is bias towards a certain opinion. In reality, friends do in fact affect purchases, but an objective view is usually a more reliable account, and it is often used for purchases (movie critiques, car reviews, etc.).