Social Influence on Consumer Demand
Consumer demand for hedonic products is driven by others’ choices: social influence boosts demand for popular products while unpopular products become even less popular. Here, Olaf Maecker, Nadja Grabenstroer, Michel Clement, and Mark Heitmann summarize findings of a macro-experiment comparing independent and social influence settings for music, movies, and scarves (from Empirical Generalizations about Marketing Impact, 2nd ed.).
Social influence on consumer demand
Demand for hedonic products is strongly driven by other consumers’ choices. Compared to conditions without social information, if social influence is displayed, market concentration increases: the Gini coefficient is significantly higher with respect to music choice (.220 > .147), movie interest (.105 >.088), and fashion consideration (.178 > .155). Even small and coincidental agglomerations of demand can attract cascades of customers, which reduces the predictability of market outcomes.
Social macro-experiment (1,143 participants) comparing independent and social influence settings across three product categories (music, movies, and scarves)
On the aggregate, social influence results in herding effects. This increases demand for popular products whereas unpopular products become even less popular. As sales ranks become increasingly widespread in social networks, low market share positioning becomes less attractive while profitability of market leadership is further increased. This forces the majority of companies to monitor sales ranks closely and update demand predictions accordingly.
Olaf Maecker, Nadja S. Grabenströer, Michel Clement, and Mark Heitmann, University of Hamburg
Maecker, Olaf, Nadja S. Grabenströer, Michel Clement, and Mark Heitmann (2013), “Charts and Demand: Empirical Generalizations on Social Influence.” International Journal of Research in Marketing 30 (4), 429–31
Salganik, Matthew J., Peter S. Dodds, and Duncan J. Watts (2006). “Experimental Study of Inequality and Unpredictability in an Artificial Cultural Market.” Science 311, 854–6
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