Jacob Goldenberg

The NPV of Bad News

Coauthor(s): Barak Libai, Sarit Moldovan, Eitan Muller.

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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.

The final version of this article can be found at http://dx.doi.org/10.1016/j.ijresmar.2007.02.003.

Source: International Journal of Research in Marketing
Exact Citation:
Goldenberg, Jacob, Barak Libai, Sarit Moldovan, and Eitan Muller. "The NPV of Bad News." International Journal of Research in Marketing 24, no. 3 (September 2007): 186-200.
Volume: 24
Number: 3
Pages: 186-200
Date: 9 2007