A Broader Perspective of Network Effects
Published 4/1/2009
Author: DAVID J. REIBSTEIN
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Executive Summary
This comment challenges the narrow definition of network effects commonly used by economists and by Tellis, Yin, and Niraj. It is common to view network effects as the impact of the size of the user base for current sales; that is, the more customers a product has, the more this enhances the product for others. The often-used example is that of the telephone, such that being the only person to have a telephone would be of no value. The impact of the network of customers can stimulate further customer sales in many other ways beyond just product enhancement. The author argues that this can happen through communications, distribution, and even pricing. It is important to try to distinguish which of these has the greatest impact.
The author also questions the model that Tellis, Yin, and Niraj use on the basis that is missing several factors that are correlated with those in the model, thus biasing the results of the study. It could even be interpreted from their model that the primary conclusion is that current product quality has a greater impact than past quality, which should serve as no surprise. Nonetheless, Tellis, Yin, and Niraj’s results are notable, and it is worth understanding the conditions under which similar results would be found.
Biography
David J. Reibstein is William S. Woodside Professor and Professor of Marketing in the Wharton School at the University of Pennsylvania. He was the executive director of the Marketing Science Institute from 1999 to 2001, where, among other things, he started the Young Scholars Program and organized the first Chief Marketing Officer Summit. He has served on numerous editorial boards; has written seven books; and has been on the faculty or has been a visiting faculty member at Harvard University, Stanford University, and INSEAD. His current research focuses on marketing metrics and connecting marketing spending to the financial value to the firm and on competitive marketing strategy. He has won numerous teaching awards at Wharton and has worked with more than 300 companies.
J Marketing Research, Volume 46, Number 2, April 2009
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