The NPV of bad news

Authored by Jacob Goldenberg, Barak Libai, Sarit Moldovan, Eitan Muller

Date Published: 2007-09

DOI: 10.1016/j.ijresmar.2007.02.003

Sponsors: Israeli National Science Foundation

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

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. (C) 2007 Elsevier B.V. All rights reserved.

Tags

Network analysis negative word-of-mouth small world strong ties weak ties