Wharton’s David Bell discusses his new research on how ‘social learning’ influences online sales.

Word-of-mouth testimonials from consumers are effective in driving online sales. But these signals are even more powerful in communities where people have closer ties and trust each other, according to new research by Wharton marketing professor David Bell and Jae Lee. That means online retailers get more bang for their marketing buck if they target close communities. Their paper, “Social Learning and Trial on the Internet,” was sponsored by the Mack Institute for Innovation Management at Wharton.

Online Sales
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Online Sales

An edited transcript of the conversation follows.

[email protected]: Your research paper looked at social learning and social capital, and their impact on internet retail sales, and you found some interesting correlations. First, can you define social learning and social capital for us, and then tell us about your research?

David Bell: I’d be happy to. First of all, let’s start with social learning. Social learning is just the idea that individuals communicate, either directly with each other, or they learn from each other via observation. So, you might have said to me this morning, “Hey David, you’ve really got to go over to Starbucks. They have the best espresso.” And I might take that information, learning it from you, and go over there. Conversely, I could just see you holding a cup of coffee with the [Starbucks logo of a] mermaid on the outside, and that might make me go get a coffee myself. So, it can either happen — social learning — through conversation, or through direct observation.

… Social capital was a term that was coined some time ago in the social sciences literature, probably popularized by [Harvard professor] Robert Putnam. He actually worked on President Obama’s first election campaign, I believe. He wrote a book called Bowling Alone, about social capital in America. The essential thesis was that people — at least, when he looked at them in the United States — [over time] tended to go to church less, join the tennis club less, be less involved in community activities. This is [exemplified by] the metaphor, I suppose, of bowling alone.

And, to really bolster this theory, he went out and collected a wide variety of data from about 30,000 households. He would ask you questions like, on a scale of [say] one to five, how much do you like your neighbors? You know, from ‘I really detest them,’ to … ‘I really enjoy them.’ And also, [he looked at] the frequency of interaction. So, social capital is really about the notion of interaction and trust; how much of those two things co-exist in a community?

[email protected]: How do social learning and social capital play a role in terms of online retail sales, according to your research paper?

“The idea that people might physically observe each other or have a conversation about the product — that was responsible for up to half of the sales.”

Bell: It’s a little bit of a step from one to the other. We looked at a product category, fashion apparel, which is a socially observable product, first of all. So, if my friend is wearing a particular pair of glasses, or a jacket, or pants, I might comment on it and he might tell me where he bought them. The idea is that the product has to be socially visible, and potentially something about which a conversation could take place.

Where social capital comes in is, we wondered whether or not the effect of information that was shared in a community differed, depending on whether it was a community where people didn’t really know and trust each other too much, or it was a community where they did know and trust each other.

[email protected]: What kind of data did you look at, and how expansive was the sample?

Bell: We took data from a men’s fashion retailer called Bonobos. It was started by two MBA students back in October 2007, essentially to sell men’s apparel online. They now have physical stores in about 30 cities, and they also have a relationship with Nordstrom. So, they’re both online and offline. For our listeners, the jargon is they’re a digitally native vertical brand, which means that they were born on the internet, but have offline, too.

They provided us with their national sales data. So, we know, for example — and it is obviously anonymized — that a certain customer in a certain location purchased particular items at this time and for this price. And so, we had basically a footprint of the entire United States, in terms of sales, coming from the company. And then, we were able to match that with the Social Capital Community Benchmark Survey — the official name of the data that Robert Putnam and his team collected — and that covers about 30,000 households, if I remember correctly.

[email protected]: What was the purpose of your research? What were the hypotheses you were trying to test?

Bell: The main question of interest in these studies often is — since it’s an internet retailer, so by definition it has a very large footprint and covers the entire United States — how might their sales evolve over time, and over location? If different locations have different characteristics — different kinds of people, different kinds of offline stores — does that have any impact on the sales? A number of authors — not only myself, but at other institutions around the country — have addressed that question.

In this particular instance, our key variable of interest was the cohesiveness of the offline community. Did that have any impact? We found two things there. First and foremost, we found that for this particular company, social learning was important in generating about half of all of their sales. So, just the idea that people might physically observe each other or have a conversation about the product — that was responsible for up to half of the sales. It was particularly important for sales that occurred later in the process.

The idea behind that relates to old ideas, and diffusion of innovation. So, if [my friend], for example, is a real innovator, he might just go out and buy Bonobos. He doesn’t need any social validation, or anyone to tell him about it. He’s maybe the kind of guy that queues up in the morning for the new iPhone. Someone who comes later in the process may come because of social influence, or social cues. So, that was the first finding — this idea of offline information transmission was driving online sales.

The second piece, the social capital piece, was really fascinating. In communities where people knew and trusted each other more, the diffusion happened more quickly. Now, it was not the case that if you live in a neighborhood where you trust your neighbors, you’re more likely to buy online. It’s not that at all. It’s more subtle. It says that if you live in a neighborhood where you know and trust people, when information is shared in that neighborhood, it has more veracity. In terms of economic jargon, the signal is more powerful. So, if two people

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