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How Social Media Affects Customer Spending

Humans are social beings, and a major part of a human’s decision making is socially influenced. In this case, we look at how social media apps such as Facebook and Snapchat help affect spending habits of customers though information conveying, and through people within a group influencing each other.

Humans interactions can be modelled with the help of a graph with nodes indicating individuals, and edges denoting that two individuals are strongly connected socially.

As shown in the graph below, social connections often occur in clusters that are strongly connected within themselves, but weakly connected to other clusters.

The different clusters help convey information across different groups of people. Because according to Mark Granovetter’s paper The Strength of Weak Ties, it is through weak ties and local bridges that people get novel information about new trends in fashion, and other novel products available. For example, through the machine learning algorithms that Facebook uses, it presents to a user the information about what his acquaintances are interested in, and through these acquaintances’ preferences, the customer gets information about new happening s in the market. However, this simply informs the customer. To see how a customer is influenced, we look at a more intimate form of social media – Snapchat.

Statistically, more that 50% of interactions on Snapchat are with people closely connected to you. Snapchat users that use snapchat while shopping have a ‘cycle’. In the pre-shopping phase, they get influenced by their friends’ shopping habits. In the post-shopping phase, they send snaps of their purchases and in turn influence their close friends in buying products that they have bought themselves. Most such information cascade models have a threshold value of percentage of close friends. If more than a certain percent buys a particular product, the customer is more likely to buy it, than if the percentage of close friends buying the product is lower than that threshold value. Thus, the more the customer’s friends snapchat while shopping, the more the customer is likely to buy a particular product. Statistically, household using Snapchat spend 39% more annually than the average household at a retail store.

Thus we see how Facebook is a powerful way to convey new information, and how more intimate social media plays a strong role in influencing customer choices.



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