Herding and Social Media Word-of-Mouth: Evidence from Groupon

Forthcoming at MISQ

49 Pages Posted: 14 May 2013 Last revised: 26 Jan 2019

See all articles by Xitong Li

Xitong Li

HEC Paris - Information Systems and Operations Management

Lynn Wu

University of Pennsylvania - The Wharton School

Date Written: January 1, 2018

Abstract

Modern online retailing practices provide consumers with new types of real-time information that can potentially increase demand. In particular, showing sales information to a customer can increase certainty about product quality, inducing consumers to herd. This effect can be particularly salient for experience goods due to their quality being inherently highly uncertain. Social media word-of-mouth (WOM) can increase product awareness as product information spreads via social media, increasing demand directly while amplifying existing quality signals such as past sales. This study examines the mechanisms behind the strategy of facilitating herding and the strategy of integrating social media platforms to understand the potential complementarities between the two strategies. We conduct empirical analysis using data from Groupon.com which sells goods in a fast cycle format of “daily deals”. We find that facilitating herding and integrating social media platforms are complements that generate sales, supporting the idea that it is beneficial to combine the two strategies on social media platforms. Furthermore, we find that herding is more salient for experience goods, consistent with our hypothesized mechanisms, while the effect of social media WOM is similar for experience goods and search goods.

Keywords: Herding, Word-of-mouth (WOM), Social media, Online marketing, Complementarity

Suggested Citation

Li, Xitong and Wu, Lynn, Herding and Social Media Word-of-Mouth: Evidence from Groupon (January 1, 2018). Forthcoming at MISQ. Available at SSRN: https://ssrn.com/abstract=2264411 or http://dx.doi.org/10.2139/ssrn.2264411

Xitong Li

HEC Paris - Information Systems and Operations Management ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Lynn Wu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

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