Liking and Following and the Newsvendor: Operations and Marketing Policies Under Social Influence

Ming Hu (), Joseph Milner () and Jiahua Wu ()
Additional contact information
Ming Hu: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Joseph Milner: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Jiahua Wu: Imperial College Business School, Imperial College London, London SW7 2AZ, United Kingdom

Management Science, 2016, vol. 62, issue 3, 867-879

Abstract: We consider a monopolistic firm selling two substitutable products to a stream of sequential arrivals whose purchase decisions can be influenced by earlier purchases. Before demand realizes, the firm faces a newsvendor problem for the two products with economies of scale in production for each. When consumers are responsive to others’ decisions, social influence amplifies demand uncertainty, leading to a lower profit for the firm. We propose three solutions for the firm to better cope with or even benefit from social influence: influencer recruitment and a reduced product assortment either before demand realization (ex ante) or under production postponement (ex post). First, the firm can offer promotional incentives to recruit consumers as influencers. We reveal an operational benefit of influencer marketing that a very small fraction of such influencers is sufficient to diminish sales’ unpredictability. Second, as the potential substitutability between products increases due to social influence, the firm may leverage the increased substitutability and enjoy lower cost in production by reducing product assortment before demand realization. Last, under production postponement, the firm can take advantage of the way that social influence results in demand herding and reduce product varieties by reacting to preorder information. This paper was accepted by Martin Lariviere, operations management.

Keywords: social influence; newsvendor; positive network externality; influencer marketing; production postponement; product assortment (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2015.2160 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:62:y:2016:i:3:p:867-879

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().