Signaling Quality to Consumers: The Role of Social Media Marketing.

This article analyzes firms' strategic spending on social media marketing (SMM), focusing on its dual roles: expanding consumer awareness and revealing product quality information. Using a game-theoretic model, the study finds that no separating equilibrium exists where firms of different quality levels distinctly signal their quality through SMM spending; instead, only partial pooling or pooling equilibria arise. When SMM solely increases awareness (benchmark case), mid- and low-quality firms tend to spend more on marketing than high-quality firms, which may spend less to avoid mimicry. Introducing SMM's information revelation role complicates quality differentiation further, making it harder for high-quality firms to distinguish themselves, and eliminating the possibility of an inverted U-shaped relationship between quality and SMM spending. These findings challenge prior literature and suggest that high-quality firms might benefit from targeted, lower SMM spending rather than broad, heavy investment, offering new insights into the variability of firms' social media marketing strategies.