Starting Cold: The Power of Social Networks in Predicting Customer Behavior in Peer-to-Peer Digital Platforms

33 Pages Posted: 27 Jul 2017 Last revised: 6 Nov 2023

See all articles by Pantelis Loupos

Pantelis Loupos

University of California, Davis - Graduate School of Management

Ying Gu

University of Washington - Michael G. Foster School of Business

Moran Cerf

Northwestern University - Kellogg School of Management

Date Written: November 03, 2023

Abstract

The last decade has seen a rapid emergence of non-contractual networked services. The standard approach in predicting future customer behavior in those services involves collecting data on a user's past purchase behavior and building statistical models to extrapolate a user's actions into the future. However, this method fails in the case of newly acquired customers where you have little or no transactional data. In this work, we study the extent to which knowledge of a customer's social network can solve this “cold-start” problem and predict the following aspects of customer behavior: (1) activity, (2) transaction levels, and (3) membership to the group of most frequent customers. We conduct a dynamic analysis on approximately 200,000 users from Venmo, the most popular peer-to-peer mobile payment application. Our models produce high-quality forecasts and demonstrate that social networks lead to a significant boost in predictive performance primarily during the first month of a customer's lifetime. Finally, utilizing propensity score matching, we investigate how the local cohesiveness of a user's initial community at the time of joining influences their likelihood of becoming a top 20% most frequent user within their cohort.

Keywords: Dynamic Social Networks; Customer Behavior; Cold-Start; Peer-to-Peer Digital Platforms; Predictive Analytics; Matching

JEL Classification: M31

Suggested Citation

Loupos, Panteleimon and Gu, Ying and Cerf, Moran, Starting Cold: The Power of Social Networks in Predicting Customer Behavior in Peer-to-Peer Digital Platforms (November 03, 2023). Available at SSRN: https://ssrn.com/abstract=3001978 or http://dx.doi.org/10.2139/ssrn.3001978

Panteleimon Loupos (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Ying Gu

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Moran Cerf

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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