11:03 AM

The best way to market a new product?

by Doug Millison for SiliconValleyWatcher.com

It's word of mouth. Researchers have proved it with statistical physics.

Silicon Valley marketers may want to study the report, recently published in the journal Physical Review Letters and summarized in a recent University of California, Berkeley press release.

The researchers "used a statistical physics model for complex systems to analyze the dynamics of commercial success for 138 books on Amazon.com's Top 50 list between 2002 and 2004 and to quantify consumer behavior."

UCB continues:

They found that these books were characterized by two types of sales peaks: Some books reached their peak abruptly, then experienced decreasing sales, while others reached the top rankings after a longer time on the market, then saw gradually falling sales. Their model symmetrically and exactly matched the rates of sales growth and decline for 84 percent of the bestsellers examined.

Thomas Gilbert, a Ph.D. student in finance at UC Berkeley's Haas School of Business, analyzed the Amazon.com bestseller database, which included thousands of books with popularity rankings updated hourly with the infusion of sales data. He used a generic network model that predicts the two kinds of peaks and he tested it against Amazon.com's database.

"It's quite amazing that in those 138 cases, this matching works so well," said Gilbert, who has a master's degree in physics. "The model doesn't just indicate that book sales are going to decay faster or slower, it gives us an exact slope. This is quite phenomenal because we're talking about a human system: It is human beings talking and buying books and talking some more."

This "econophysics" model has been applied to forecast earthquake aftershocks, stock market crashes and epidemics, Gilbert said, but this use is a first for consumer behavior with respect to such a simple and ordinary product -- books. The model focuses on two types of "shocks" that cause a significant outcome: exogenous shocks that strike like a hammer blow and quickly subside, and endogenous shocks that build slowly and retain more of their strength longer.

Books that enjoyed a spike in sales from an exogenous shock (a great review in a top-tier publication, for example) saw sales decline quickly, while books that get good word-of-mouth recommendations enjoy the longer lasting endogenous stimulation:

"The endogenous shock," said Gilbert, "clearly says that if you manage to convince a small handful of people or small book clubs here or there, the likelihood of really penetrating the network of buyers and selling a lot is higher."

For a book characterized by exogenous shock, Gilbert said, publishers could opt to re-launch the book when sales start to decay, spending more money on an ad and "pushing the network" again. "This gives them a way of quantifying this very precisely, timing the market and timing it very well," he said.

There's got to be at least one Silicon Valley marketer who can figure out how to apply statistical physics to measure the results of product or service roll-outs. And, if somebody out there already has, please let me know.


Researchers use physics to analyze dynamics of bestsellers

What's the story? Doug Millison also edits OnlineJournalist.org, "on a need-to-know basis"