How do social groups affect your business?
From identifying influential consumers to nabbing fraud rings, social network analysis digs into social group dynamics and presents a clear picture of connections
While the study of human relationships has existed for centuries, it was not until 1908, when Georg Simmel presented his network-based analysis, that social systems were depicted through graphs that used nodes to represent individuals and ties to represent the relationships between them. Known as social network analysis, the types of relationships that make up a network can be diverse, including friends, classmates, deposits, purchases and personal interests.
Social networks allow us to recognize and understand customer behaviors that, as isolated behaviors, might otherwise seem ordinary. A closer inspection of customer behaviors is now possible through advances in computer systems and through historical data about customer transactions. In many cases, these tools allow us to identify the relationships that customers maintain by way of their transactions, contact information, addresses, telephone numbers, acquaintances or referrals.
How can social network analysis be applied to your business? Here are a few examples:
- Banks use it to detect money laundering.
- Telco marketers use it to identify the most influential members of a social community.
- Credit providers use it to better assess the risk of individual applicants.
Banks maintain information regarding transactions that occur between accounts. If we link these transactions and factor in demographic information – and the times at which the transactions occurred – we can create a social network that identifies communities or groups of connected people within the network. These communities could be friend groups, family groups who live in separate homes, or groups of individuals organized to commit fraud or money laundering.
Social network analysis identifies behaviors because it analyzes relationships on multiple levels. Instead of linking only one account with another, it links all accounts that have had some sort of relationship during a given period of time, assessing these relationships and identifying high-risk groups.
Marketing to the leaders
In marketing terms, social network analysis can identify the most influential members of a community or social group. These individuals are invaluable if you want to quickly spread a marketing campaign. As leaders, they are well-connected and have a high response level within the community.
For example, telephone and cellular telephone companies collect data about customer phone calls. A social network analysis of this data can identify highly related telephone user communities through processes that increase connections among these communities and separate telephone users into distinct groups. The ages, socioeconomic levels and needs of a particular group can be inferred based on community characteristics, allowing telephone companies to develop new products and marketing campaigns directed at the leader and more influential members of that community.
By marketing to the community leaders, the number of contacts is reduced and the campaign’s reach is broadened at reduced costs. Campaigns aimed at the specific needs of a community can increase group loyalty and create a new draw to the community.
Assessing credit risk
Credit approval has been so well studied that few people believe any new information exists on the subject. However, social network analysis can be employed to qualify individuals who request loans. Advanced methods evaluate individuals not only by their defining characteristics (as is standard practice), but also by the risk that such individuals pose based on their membership within a given social group. Social network analysis can be used to enhance standard credit scorecard models with variables that evaluate an applicant’s social environment. The examples provided here are only a few of the many applications of social network analysis. In general, it allows us to identify complex relationships that cannot be identified any other way. Today, social network analysis makes it possible to study social networks made up of millions of members, connected through their communications, bank transactions, homes, shopping centers and more, in a matter of hours.
Social network analysis focuses on the relationships between individuals – without prejudice or too much attention to the characteristics of the individuals themselves – such as age, salary and education. It is precisely this focus on relationships that has proven to be an effective factor for the purposes of information dissemination, campaign management, disease control, con artist identification, exposure of complex money-laundering schemes, detection of tax evasion and client retention.
Héctor Cobo is the Director of Professional Services for SAS Latin America North.