Impact of Social Networks on Consumers' Purchase Decisions and Firms' Operational Strategies

Abstract

Nowadays, consumers are inclined to learn from each other about the product information and their purchase decisions are influenced by other consumers in social networks. Consumers' such collective social behavior in social networks has a significant impact on firms' operational strategies, and also, it is important to know what operational decisions can be made to influence or even utilize such consumers' collective social behaviors. In addition to the influence of consumers' social networks, recently, with the development of globalization, a firm's supply chain network becomes more and more complex. This supply chain network is another type of network that exerts significant impact on firms' operational strategies. In this dissertation, we focus on investigating the impact of different networks, including the downstream consumer networks and the upstream supply chain networks, on consumers' purchase behaviors and retailing firms' operational strategies. The research questions and main findings are summarized as follows.

First, we analyze a retailer's two-period differential pricing problem with strategic consumers connected in a general social network. The consumers who purchase in the later period can get positive externality from her friends who have purchased in the early period, but have to bear a utility discount for the delayed consumption. We derive the optimal pricing policy under general network structures. We find that, (1) First, when the influence between the consumers is symmetric and the intensity of the network externality effect is lower than a threshold, it's optimal for the seller to conduct an increasing-pricing strategy. However, when the influence between the consumers is asymmetric and the network externality effect is very substantial, the seller may use decreasing-pricing strategy for some consumers. (2) Ignoring consumer network structure often causes profit loss, the profit loss tends to increase with the intensity of network externality effect and can be very significant. (3) By comparing the differential and uniform pricing policies, we find that, the influence asymmetry among the consumers is beneficial for the seller if he can charge different prices for different consumers. However, the influence asymmetry will hurt the seller's profit if he can only charge uniform price for all the consumers.

Second, we study the impact of consumers' social learning (SL) behavior in social networks on consumers' panic buying decisions under supply disruption situation, and accordingly, how the retailer can optimize his ordering strategy to deal with it. In the study, (1) we demonstrate that consumer's SL behavior can have a substantial impact on the total demand under supply disruption situation. If the panic intensity among the consumers exceeds certain level, the SL behavior will make consumers more panic and induce more panic buying. In addition, whether a herd of stockpiling occurs or not is also highly dependent on the initial panic intensity and SL effect. Here, a herd of stockpiling means that all the following consumers join the queue to stock products regardless of their prior belief of retailer's shortage rate. (2) We derive the optimal ordering policy for the retailer. By comparing retailer's profit in the SL and no-SL cases, we find that only when consumer's panic intensity is relatively high, can consumer's SL behavior be beneficial for the retailer. Whereas if the retailer ignores consumer's SL behavior in the ordering decision, this ignorance can lead to substantial profit loss.

Finally, we provide a detailed examination on the impact of different risk sources in a supply chain network. We compare the impact of supply risk and demand risk on retailer's sourcing strategy and profitability in a supply chain network. We consider a two-by-two supply chain network in which two different retail stores source from two suppliers. The result shows that, (1) the retailer tends to be more aggressive in her ordering quantity under a supply risk setting than under a comparable demand risk setting. (2) While in the benchmark case with only one supplier and one retailer, the supply risk's impact on the retailer's profit is always lower than the impact of the comparable demand risk, we find that when there are two suppliers and two retail stores in the supply chain network, the impact of supply risk on the retailer's profit can be either higher or lower than that of demand risk. (3) The retailer's profit decreases faster with the increase of demand risk level than the supply risk level, which means that investing to increase the demand forecasting accuracy will be more effective in improving the retailer's performance than investing into increasing the supplier's reliability.

Date of Award	8 Feb 2018
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Biying SHOU (Supervisor) & Jun YANG (External Supervisor)