Working Paper
The authors 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.
The authors' 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 and increase their profits by better managing the exclusivity-sales trade-off.
The authors find
that the firm’s best targets are high-conspicuity customers within intermediate-degree
segments – in contrast with the practice of targeting high degree customers. The authors also find that
information about degree is more valuable than information about conspicuity. Surprisingly,
strategies informed only by degree perform no worse than those informed by degree and
conspicuity both, yet the opposite is not true.
Customer self-selection is a perfect substitute
for unavailable information on conspicuity, but there is no such recourse when degree
information is unavailable. Examining alternate settings (conformance social comparisons,
functional value heterogeneity) suggests that there are two canonical categories of social
information– less valuable information on characteristics where the firm’s preferred customers
are also the most interested customers and more valuable information on characteristics
where they are not.
