The notion of consumer networks expresses the idea that people's embeddedness in

social network A social network is a social structure consisting of a set of social actors (such as individuals or organizations), networks of Dyad (sociology), dyadic ties, and other Social relation, social interactions between actors. The social network per ...

s affects their behavior as

consumer A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

s. Interactions within consumer networks such as

information exchange Information exchange or information sharing means that people or other entities pass information from one to another. This could be done electronically or through certain systems. These are terms that can either refer to bidirectional '' inform ...

and

imitation Imitation (from Latin ''imitatio'', "a copying, imitation") is a behavior whereby an individual observes and replicates another's behavior. Imitation is also a form of learning that leads to the "development of traditions, and ultimately our cu ...

can affect demand and market outcomes in ways not considered in the neoclassical theory of

consumer choice The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption (as measured by their pr ...

Economics

Economic research on the topic is not ample. In attempts to incorporate consumer networks into standard microeconomic models, some interesting implications have been found concerning market structure, market dynamics and the firm's profit maximizating decision. It has been shown that under certain assumptions the structure of the consumer network can affect market structure.. In certain scenarios, where consumers have a higher inclination to compare their habitually consumed product to that of their acquaintances, the equilibrium market structure can switch from

oligopoly An oligopoly () is a market in which pricing control lies in the hands of a few sellers. As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function. Firms in ...

monopoly A monopoly (from Greek language, Greek and ) is a market in which one person or company is the only supplier of a particular good or service. A monopoly is characterized by a lack of economic Competition (economics), competition to produce ...

. In another model, which incorporates small world consumer networks into the profit function of the firm,. it has been demonstrated that the

density Density (volumetric mass density or specific mass) is the ratio of a substance's mass to its volume. The symbol most often used for density is ''ρ'' (the lower case Greek letter rho), although the Latin letter ''D'' (or ''d'') can also be u ...

of the network significantly affects the optimal price the firm should charge and the optimal referral fee (paid to consumers who can convince another one to buy). On the other hand, the size of the network does not have an important effect on these. A 2007 laboratory

experiment An experiment is a procedure carried out to support or refute a hypothesis, or determine the efficacy or likelihood of something previously untried. Experiments provide insight into cause-and-effect by demonstrating what outcome occurs whe ...

. found that increased density of consumer networks can reduce market inefficiencies caused by moral hazard. The ability of consumers to exchange information with more neighbors increases firms’ incentives to build a reputation through selling high quality products. Even a low level of density was found to isolated consumers who can rely only on their own experience.

Marketing

Exploiting consumer networks for marketing purposes, through techniques such as

viral marketing Viral marketing is a business strategy that uses existing social networks to promote a product mainly on various social media platforms. Its name refers to how consumers spread information about a product with other people, much in the same way th ...

word-of-mouth marketing Word-of-mouth marketing (WOMM, WOM marketing, also called word-of-mouth advertising) is the communication between consumers about a product, service, or company in which the sources are considered independent of direct commercial influence that has ...

, or network marketing, is increasingly experimented with by marketers, to the extent that "some developments in customer networking are ahead of empirical research, and a few seem ahead even of accepted theory".Van den Bulte, Christophe (2010). "Opportunities and Challenges in Studying Customer Networks" P. 7 in Stefan H.K. Wuyts et al. (eds.) ''The Connected Customer: The Changing Nature of Consumer and Business Markets'', Routledge. These might often be more effective than more traditional forms of

advertising Advertising is the practice and techniques employed to bring attention to a Product (business), product or Service (economics), service. Advertising aims to present a product or service in terms of utility, advantages, and qualities of int ...

. A key task of such forms of marketing is to target the people who are opinion leaders regarding consumption, having many contacts and positive reputation. They are, in network science language, the hubs of consumer networks.

Notes and references

{{Reflist

Network Network, networking and networked may refer to: Science and technology * Network theory, the study of graphs as a representation of relations between discrete objects * Network science, an academic field that studies complex networks Mathematics ...

Network theory

Economics

Marketing

See also

Notes and references