The Use and Value of Social Information in Selective Selling of Exclusive Products
70 Pages Posted: 29 Mar 2016 Last revised: 1 Aug 2017
Date Written: March 28, 2016
We consider the use and value of social network information in selectively selling goods and services whose value derives from exclusive ownership among network connections or friends. Our stylized model accommodates customers who are heterogeneous in their number of friends (degree) and their proclivity for social comparisons (conspicuity). Firms with information on either (or both) of these characteristics can use it to make a product selectively available to desired customers to manage the trade-off between exclusivity and sales. We find that, in contrast with the practice of targeting high degree customers, the firm’s best targets are, in fact, high-conspicuity customers within intermediate degree segments. Interestingly, we find that degree-information is systematically more valuable than conspicuity-information. Analyses of many model variants, and of scenarios with personalized pricing and full graph information, suggest that there are two canonical categories of social information– less valuable “consonant” information on characteristics where the firm’s preferred customers are also the most interested customers and more valuable “competing” information on characteristics where they are not. Customers can be incentivized to act in a way that their actions are a perfect substitute for consonant information, but there is no such recourse for the lack of competing information.
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