http://www.cs.washington.edu/homes/pedrod/papers/iis04.pdf

http://w4.stern.nyu.edu/news/news.cfm?doc_id=100060

In a paper entitled, “Mining social networks for viral marketing,” by Pedro Domingos from the University of Washington, the network value of customers in relation to marketing is examined. In the larger scope of applying the concept of social networks, Domingos illustrates how such models allow viral marketing plans to be developed based on the goal of maximizing word of mouth to attain higher profits. Defined as a type of marketing technique that utilizes pre-existing social networks to increase brand awareness, viral marketing can take forms such as text messages and flash games. In order for viral marketing to be effective, it is integral that customers have high network values, which is influenced by high connectivity in the network, passion for the product, acquaintances with high connectivity and symmetric influence. As a result, even with incomplete knowledge of the whole network, Domingos advances his viral marketing model as a successful means to help a company grow in comparison to targeted marketing. In another research study entitled, “Network-based marketing: Identifying likely adopters via consumer networks,” by Hill and Volinsky, social networks were analyzed by examining a telecommunications firm that was marketing a new product. Similar conclusions were reached as network neighbors were found to be more likely to adopt the service at a higher rate than the baseline group. Hence, through viral marketing, consumers are not only made more aware of the products, but the tangible benefits as well.

In class, we learned how network effects can impact a firm’s decisions. If a firm were to introduce a new product into the market, early preferences and early information play a key role in being successful. It is imperative to target initial users who are highly influential in their social network and to understand who their potential customers are. This information comes into effect as a firm considers pricing, but as word of mouth and targeted marketing increases, consumers will increase. Hence, a huge network effect would result in an increased price consumers would be willing to pay from a possible initial lower cost. Thus, acknowledging the distinction between mass marketing and targeted marketing within social networks as well as understanding the dynamics of the market network are integral components in the marketing 101 concept of supply and demand. As we all know, information cascades have the power to create big imbalances in the network and such mechanisms behind marketing can be the intrinsic reason why some things do become widely popular.

Furthermore, blogging communities (same as this one) have risen and exploded throughout the years and such opinions have created effective word of mouth campaigns. Such data, in light of network effects and social networks, is essentially a small part of the larger collective data that can help companies reach the most profitable marketing decisions.