Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2009
  • Working Paper
  • HBS Working Paper Series

Do Friends Influence Purchases in a Social Network?

By: Raghuram Iyengar, Sangman Han and Sunil Gupta
  • Format:Print
  • | Language:English
  • | Pages:36
ShareBar

Abstract

Social networks, such as Facebook and Myspace have witnessed a rapid growth in their membership. Some of these businesses have tried an advertising-based model with very limited success. However, these businesses have not fully explored the power of their members to influence each other's behavior. This potential viral or social effect can have significant impact on the success of these companies as well as provide a unique new marketing opportunity for traditional companies.

However, this potential is predicated on the assumption that friends influence user's behavior. In this study we empirically examine this issue. Specifically we address three questions - do friends influence purchases of users in an online social network; which users are more influenced by this social pressure; and can we quantify this social influence in terms of increase in sales and revenue.

To address these questions we use data from Cyworld, an online social networking site in Korea. Cyworld users create mini-homepages to interact with their friends. These mini-homepages, which become a way of self-expression for members, are decorated with items (e.g., wallpaper, music), many of which are sold by Cyworld. Using 10 weeks of purchase and non-purchase data from 208 users, we build an individual level model of choice (buy-no buy) and quantity (how much money to spend). We estimate this model using Bayesian approach and MCMC method.

Our results show that there are three distinct groups of users with very different behavior. The low-status group (48% of users) are not well connected, show limited interaction with other members and are unaffected by social pressure. The middle-status group (40% users) is moderately connected, show reasonable non-purchase activity on the site and have a strong and positive effect due to friends' purchases. In other words, this group exhibits "keeping up with the Joneses" behavior. On average, their revenue increases by 5% due to this social influence. The high-status group (12% users) is well connected and very active on the site, and shows a significant negative effect due to friends' purchases. In other words, this group differentiates itself from others by lowering their purchase and strongly pursuing non-purchase related activities. This social influence leads to almost 14% drop in the revenue of this group. We discuss the theoretical and managerial implications of our results.

Keywords

Marketing; Network Effects; Sales; Power and Influence; Social and Collaborative Networks; Web Sites; South Korea

Citation

Iyengar, Raghuram, Sangman Han, and Sunil Gupta. "Do Friends Influence Purchases in a Social Network?" Harvard Business School Working Paper, No. 09-123, April 2009.
  • Read Now

About The Author

Sunil Gupta

Marketing
→More Publications

More from the Authors

    • March 2023
    • Faculty Research

    Best Buy: Renew Blue (C)

    By: Sunil Gupta, Dave Habeeb and Amram Migdal
    • March 2023
    • Faculty Research

    Best Buy: Renew Blue (B)

    By: Sunil Gupta, Dave Habeeb and Amram Migdal
    • March 2023
    • Faculty Research

    Best Buy: Renew Blue (A)

    By: Sunil Gupta, Dave Habeeb and Amram Migdal
More from the Authors
  • Best Buy: Renew Blue (C) By: Sunil Gupta, Dave Habeeb and Amram Migdal
  • Best Buy: Renew Blue (B) By: Sunil Gupta, Dave Habeeb and Amram Migdal
  • Best Buy: Renew Blue (A) By: Sunil Gupta, Dave Habeeb and Amram Migdal
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College