Targeting Informative Messages to a Network of Consumers

Networks, the Internet, and Cloud Computing, Internet and Search and Advertising

Article Snapshot

Author(s)

James D. Campbell

Source

Review of Network Economics, Vol. 11, No. 3, pp. 1-31, 2012

Summary

This paper develops an economic model in which firms choose strategies to advertise through social networks.

Policy Relevance

Permitting industry-wide advertising cooperatives in industries where firms sell an identical product (say, milk) might reduce costs associated with excessive advertising.

Main Points

  • Word-of-mouth is an important consideration for advertisers.

    • Instead of attempting to directly contact everyone they would like to inform about their product, they can rely on an individual who has seen an advertisement to tell an acquaintance at no additional cost.
       
  • Many networks are public: for example, many connections on Twitter are publically visible.  This paper focuses on advertisers who know the structure of a network.
     
  • Word-of-mouth studies have focused on contacting well-connected, influential opinion leaders.

    • For example, Twitter accounts with many followers are opinion leaders; so are fashion icons and newspaper columnists with high readership.
       
    • However, some segments of a network might be poorly-connected to major opinion leaders and these need to be targeted separately.
       
    • Without considering competition, an advertising strategy targeting isolated segments and opinion leaders will generally be the cheapest method of informing a network.
       
  • Firms facing no competition will advertise efficiently in social networks.
     
  • However, firms that compete with each other will advertise more than firms not facing competition.

    • If competition is high intensity—a consumer who learns about both firms simultaneously will buy from neither—firms will advertise only to one part of the social network.
       
    • If competition is low intensity, so that a consumer who learns about both firms simultaneous will buy from one randomly, advertising efforts will overlap.
       
    • Firm-wide advertise cooperation can overcome problems of over-advertising under competition.

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