The NPV of bad news

Jacob Goldenberg, Barak Libai, Sarit Moldovan, Eitan Muller

Research output: Contribution to journalArticlepeer-review

Abstract

We explore the effects of individual-and network-level negative word-of-mouth on a firm's profits using an agent-based model, specifically an extended small-world analysis. We include both permanent strong ties within the social network, and changing, often random, weak ties with other networks. The effect of negative word-of-mouth on the Net Present Value (NPV) of the firm was found to be substantial, even when the initial number of dissatisfied customers is relatively small. We show that the well-known phenomenon of the strength of weak ties has contradictory effects when taking into account negative word-of-mouth: Weak ties help to spread harmful information through networks and can become a negative force for the product's spread.

Original languageEnglish
Pages (from-to)186-200
Number of pages15
JournalInternational Journal of Research in Marketing
Volume24
Issue number3
DOIs
StatePublished - Sep 2007

Keywords

  • Negative word-of-mouth
  • Network analysis
  • Small world
  • Strong ties
  • Weak ties

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