Network-Based Marketing: Identifying Likely Adopters via Consumer Networks

Network-based marketing refers to a collection of marketing techniquesthat take advantage of links between consumers to increase sales. Weconcentrate on the consumer networks formed using direct interactions(e.g., communications) between consumers. We survey the diverseliterature on such marketing with an emphasis on the statistical methodsused and the data to which these methods have been applied. We alsoprovide a discussion of challenges and opportunities for this burgeoningresearch topic. Our survey highlights a gap in the literature. Becauseof inadequate data, prior studies have not been able to provide direct,statistical support for the hypothesis that network linkage can directlyaffect product/service adoption. Using a new data set that representsthe adoption of a new telecommunications service, we show very strongsupport for the hypothesis. Specifically, we show three main results:(1) “Network neighbors”—those consumers linked to aprior customer—adopt the service at a rate 3–5 times greaterthan baseline groups selected by the best practices of the firm’smarketing team. In addition, analyzing the network allows the firm toacquire new customers who otherwise would have fallen through thecracks, because they would not have been identified based on traditionalattributes. (2) Statistical models, built with a very large amount ofgeographic, demographic and prior purchase data, are significantly andsubstantially improved by including network information. (3) Moredetailed network information allows the ranking of the network neighborsso as to permit the selection of small sets of individuals with veryhigh probabilities of adoption.