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The profit impact of revenue heterogeneity and assortativity in the presence of negative word-of-mouth

Mohammad G. Nejad, Mehdi Amini and Daniel L. Sherrell

International Journal of Research in Marketing, 2016, vol. 33, issue 3, 656-673

Abstract: This study explores the adverse effects of customer disappointment after adoption accompanied by spreading negative word-of-mouth on firm profits. The study examines the effects of heterogeneity and assortativity of customer revenue on the profit impact of negative word-of-mouth that is initiated by three groups of consumers—revenue leaders, social hubs, and experts. The authors explore these effects using an agent-based simulation modeling approach and an in-depth computational experiment with empirical input data regarding social connectivity from 10 consumer social networks. The results indicate that negative word-of-mouth is more damaging in markets where there is a higher degree of heterogeneity. Moreover, assortativity may significantly affect the profit impact of disappointments, but this effect depends on the initial percentage of disappointed adopters. The study also finds an interaction between heterogeneity and assortativity, such that the effect of heterogeneity increases as assortativity increases up to a moderate level of assortativity, then the effect of heterogeneity on profits remains relatively constant. The implications from these results suggest that marketing managers should consider the heterogeneity and assortativity characteristics of their customer revenue streams to (a) better manage the adverse profit impacts of customer disappointments and negative word-of-mouth; (b) design more effective customer loyalty programs; and (c) more efficiently manage their customer equity portfolios.

Keywords: Negative word-of-mouth; Heterogeneity; Assortativity; Innovation diffusion; NPV of firm profits; Agent-based modeling and simulation (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:eee:ijrema:v:33:y:2016:i:3:p:656-673