Advertising, Negative Word-of-Mouth, and Product Acceptance

Gur Yaari (), Sorin Solomon and Christophe Deissenberg
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Gur Yaari: Bar-Ilan University

European Journal of Economic and Social Systems, 2006, vol. 19, issue 2, 257-268

Abstract: With this paper, we suggest a general simulation framework to analyze the impact on the sales of a newly introduced product of (a) advertising; and (b) of (positive or negative) word-of-mouth in a market where numerous agents are interconnected through a socioeconomic network and provide their neighbors with subjective information about the quality of the product. The information transmitted by an agent is based on (i) advertising messages from the firm distributing the product, and/or (ii) on messages received from the agent's neighbors, and/or (iii) on first-hand experiences with the product. We investigate the effect of (1) the choice of quality; (2) of the choice of advertising message; and (3) of the network topology on the time profile of sales and on the cumulated actual sales. We find that actual sales remain typically below the theoretical market potential under full information and are (unless the product is of very low quality) decreasing in the advertised quality level. Furthermore, when the underlying social network has a high average path length, there is a sharp jump in the cumulated sales as the product quality reaches a given threshold.

Keywords: Marketing; Advertising; Heterogeneous Agents; Discrete Choice; Social Interactions; Reputation Effects; Word-of-Mouth; Negative Word-of-Mouth (search for similar items in EconPapers)
Date: 2006
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