Gabelli Exposes Effects of Negative Word-of-Mouth
Fordham-Gabelli’s Graduate School of Business recently posted an article by Tom Stoelker on “how negative word-of-mouth communications may affect different markets” as part of agent-based modeling research published in the International Journal of Research in Marketing.
Assistant professor of marketing Mohammad G. Nejad, one of the paper’s co-authors, explored how “negative word-of-mouth reduces the bottom line” in large part due to addressing the conflicting needs of heterogeneous markets.
In essence: “It’s about how many people dropped the product or service, how many people decided not to buy the product, and the revenue potential each of person.” Using agent-based modeling, Nejad was able to “determine whether [each consumer type] might drop or keep their product after hearing negative comments through word-of-mouth. He then could analyze how that would affect the overall market.”
Nejad explains, “These models have critical managerial implications because what I’m telling these managers is what, according to the models, they need to be concerned with and how it will affect their revenue.”
According to the article, agent-based modeling relies on “complex adaptive systems, according to which different entities interact with each other and make their own decisions. Complex outcomes may be explained using simple interactions between these entities.”
Using “consumer connectivity maps from 10 different social media networks…layered with customer revenue levels and the effect of advertising,” Nejad explains how his team “examined the performance of over 2 million scenarios of various product introductions in different markets and examined how distinct factors interact with each other, leading to firm profits.”
The stakes of agent-based modeling vary greatly between homogeneous markets—where customers share a socioeconomic bracket and spend the same amount on a service— and heterogeneous markets—those where customer profiles fluctuate.
According to Nejad, “The heterogeneity of the market is more important than how many customers are disappointed and spread negative word-of-mouth. If you’re dealing with a homogeneous market, its not going to be as sensitive to word-of-mouth as when you have a highly heterogeneous market. If negative word-of-mouth spreads there, you’re going to lose a lot of money.”
About the Author
Jonathan Pfeffer
Jonathan Pfeffer joined the Clear Admit and MetroMBA teams in 2015 after spending several years as an arts/culture writer, editor, and radio producer. In addition to his role as contributing writer at MetroMBA and contributing editor at Clear Admit, he is co-founder and lead producer of the Clear Admit MBA Admissions Podcast. He holds a BA in Film/Video, Ethnomusicology, and Media Studies from Oberlin College.
