Opinion Leaders and Product Variety
To form expectations of product quality, consumers frequently rely on opinion leaders who presumably have better expertise in the category. But opinion leader recommendations are influenced by both the product quality and the idiosyncratic preferences of the opinion leader. Consequently, the followers need to form expectations of how much a recommendation is driven by the product quality versus by the product’s idiosyncratic fit to the opinion leader. Since the opinion leader is likely able to select a better fitting version from a larger variety, the opinion leader’s idiosyncratic fit depends on the product variety. We analyze how the product variety affects consumer inference of quality, and consequently, formulate recommendations of how the firm should adjust its product variety in the presence of opinion leaders. We find that the adjustment may be either upward or downward. Generally, it is upward if opinion leaders are more difficult to satisfy. However, when the optimal variety absent consideration of opinion leaders is infinite, the optimal variety given this consideration may be finite. Moreover, the firm’s knowledge of the true quality may further increase the distortion of the optimal variety even when the equilibrium variety is pooling across the product qualities.