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Herding and Social Media Word-of-Mouth: Evidence from Groupon

Marketing

How can herding and social media word-of-mouth increase the demand online? In this interview, Xitong Li, Associate Professor of Information Systems at HEC Paris, unveils his latest research co-authored by Lynn Wu of the Wharton School, University of Pennsylvania, revealing what they have found from Groupon’s combination of both techniques.

Groupon deal shared on a smartphone

How do you define a social media? And which social media have you studied?

Social media refers to any media that is shared via social networking platforms or channels. The particular social media that we have studied include Facebook and Twitter, which are possibly the two most popular social media platforms.

What is social media word-of-mouth?

Word of Mouth or WOM is a long-standing concept in marketing. Social media word-of-mouth is word-of-mouth that is disseminated via social media.

word of mouth
©MK-Photo-AdobeStock

What is «herding» in marketing?

Herding refers to the phenomenon where people follow other people’s decisions or actions. In marketing, herding often refers to that customers follow other customers’ purchase decisions when they consider some products. For example, we often go to the restaurants where we see many customers waiting in a long queue, because we perceive those restaurants as offering great food.

How can the social media increase the demand online?

Modern online retailing practices provide consumers with new types of real-time information that can potentially increase demand. In particular, showing sales information to a customer can increase certainty about product quality, inducing consumers to herd. 

Xitong Li HEC

Modern online retailing practices provide consumers with new types of real-time information that can potentially increase demand.

This effect can be particularly salient for experience goods (such as wine, music, and restaurants) due to their quality being inherently highly uncertain. Social media word-of-mouth can increase product awareness as product information spreads via social media, increasing demand directly while amplifying existing quality signals such as past sales. 

What did you find by studying Groupon?

By empirically analyzing data from Groupon.com, which sells goods in a fast cycle format of “daily deals”, we examined the mechanisms behind the strategy of facilitating herding and the strategy of integrating social media platforms to understand the potential complementarities between the two strategies. 

Facilitating herding and integrating social media platforms are complements that generate sales.

We find that facilitating herding and integrating social media platforms are complements that generate sales, supporting the idea that it is beneficial to combine the two strategies on social media platforms.Furthermore, we find that herding is more salient for experience goods, while the effect of social media word-of-mouth is not significantly different for experience goods and search goods (such as printers, print papers, and pens).

Herding is more salient for experience goods, while the effect of social media word-of-mouth is not significantly different for experience goods and search goods.

How is Groupon combining social media and herding?

Concretely, Groupon displays the sales number of each deal in real-time on the deal page, and in the meantime provides customers with the interface to share the deals via social media, like Facebook and Twitter. Groupon can induce herding by displaying the sales number in real time, while leveraging social media word-of-mouth by allowing customers to share the deals via social media.

 

Cover Photo Credits ©dzianominator-AdobeStock

Interview based on research by Xitong Li (HEC Paris Business School) and Lynn Wu (The Wharton School, University of Pennsylvania), Herding and Social Media Word-of-Mouth: Evidence from Groupon, published in MIS Quarterly, 2018.

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