Network-based Marketing: Using Existing Customers to Help Sell to New Ones

Came across this very interesting article on Network based marketing and came across these facts which I think will form a new dimension the variables associated in marketing programs.   This study, co-authored by Shawndra Hill, Wharton professor of operations and information management, found that consumers are far more apt to buy a company’s product if they are "network neighbors" with existing customers. 

You can get hold of the study from my esnips account by clicking here

In simple terms if you are buying a ipod, you would probably have heard about it from your friend using it and whose tastes you would like to copy. You would have seen and heard about the Ipod from several people but this closeness to a friend makes a difference. 


1)Who talks to whom or who emails whom — could allow companies to pinpoint likely customers who otherwise would be overlooked.

The study examines the influence of social networks by studying a large telecommunications firm that was marketing a new service. ‘"Network neighbors — those consumers linked to a prior customer — adopt the service at a rate three to five times greater than baseline groups selected by the best practices of the firm’s marketing team," the study finds. "In addition, analyzing the network allows the firm to acquire new customers who otherwise would have fallen through the cracks, because they would not have been identified based on traditional attributes."

Shawndra says, that by tapping into consumer networks, companies are taking advantage of certain attributes that aren’t identifiable through traditional marketing research. "It may well be that direct communications between people is a better indicator of deep similarity than any demographic or geographic attributes," the researchers write. In other words, who you talk to may be more important than where you live.

2)Network-neighbor effect to manifest itself differently for different types of products

People are more likely to talk about "a new, high-tech gadget or a recently released movie. There to be less buzz for less ‘sexy’ products, like a new deodorant or a sale on grapes at the supermarket."

So, what are the players doing to exploit this phenomenon???

The researchers suggest that their findings could prove useful for a variety of companies, not just telecommunications businesses. "For example, eBay recently purchased Internet-telephony upstart Skype for $2.6 billion; they now also will have large-scale, explicit data on who talks to whom," they write. "With gmail, Google’s email service, Google now has access to explicit networks of consumer interrelationships and already is using gmail for marketing; directed network-based marketing might be a next step."

In addition, social networking sites such as MySpace, Friendster and Facebook could be "fruitful fields for network-based marketing." Blogs, which tend to attract people with similar interests, could also be harnessed.

And what about Privacy???

Hill acknowledges that firms that use direct target marketing walk a fine line between generating value for their consumers and intruding on their privacy. But, she says, "we show in our study that a wider variety of consumers are made aware of cost effective telecommunications products than would be aware of them without the targeted marketing strategy. Overall, the cost savings and additional features result in tangible benefits to the targeted consumers."

Ultimately, she says, "firms own their customers’ data — including email content and MySpace messages — and legally can use it for such purposes as target marketing and fraud detection. Therefore, consumers should be aware that when they reveal both traditional and social network personal information to firms, this information might be used for target marketing or other purposes."

Let’s see what comes up ahead, until then, sayonara.

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