Networks are crucial parts of any action taken in a marketplace. Peter Drucker even described the future economy as one of a society of networks. Companies embedded in such networks stand to gain a lot. There are a number of different network models, which have distinct relevance to customers, and marketing initiatives. A network in marketing can be formed either strategically (e.g. Business networking) or completely randomly (e.g. Referral economy). Marketing channels and business networks have been referred to, by Achrol & Kotler as:
“Interdependent systems of organizations and relations that are involved in carrying out all of the production and marketing activities involved in creating and delivering value in the form of products and services to intermediate and final customers.”
Achrol & Kotler stated that networks are not accepting of traditional mechanisms, such as authority and control. Suggesting that organizational hierarchy, power and contracts are now exchanged for instruments of relational control. Businesses such as Ford, Procter & Gamble and General Electric have evolved in much the same. It wasn't all to long ago that they were organized as classic hierarchies. Displaying central control, unified purpose, and complex management structure of many tiers.
Business and marketing networks differ in the amount of connectivity between agents. Some markets, which are more fragmented, have less connectivity between agents than others. On top of this, the level of complexity differs between various networks, some may seem ordered and rather linear, whereas other random and chaotic. As a network develops, agents or entities form relationships with others, which increases the efficiency of operations. Although, this inevitably adds complexity to otherwise simple networks, and makes them more prone to chaos.
Networks in general
A network is a web of interrelated lines, passages, or edges, intersecting at a certain points, nodes, vertices, or places, which can be interlinked with other networks and contain sub networks . Networks have been linked to branches of mathematics, electronics, biology, and biosocial fields. Studies of inter-organization relations, and its networks, can be traced to early societies.
History
In 1736, Leonhard Euler created graph theory. Graph theory paved the way for network models such as Barabási-Albert's scale-free networks, chance networks such as Paul Erdös and Alfréd Rényi, Erdős–Rényi model, which applies to random graph theory, and Watts & Strogatz Small-world network, all of which can be adapted to be representative of strategies and or relationships in the marketplace.
With respect to marketing, much of the creation of theories around systems, structure, and the management of business networks, can arguably be attributed to early economists such as John Common, Ronald Coase, and Joseph Schumpter. John Commons, in 1934, took ideas from the fields of law, economics, and psychology, and focused on transactions as a rudimentary unit of analysis. Commons showed how united economic entities arise and grow to deal with inherent conflicts of interest among agents and how united organizations are in control of individual actions in that it both restricts and facilitates it. Joseph Schumpter, in 1939, focused on the processes underlying industrial organizations and how they have transformed. He showed how the battle for survival among various types of businesses and networks, vying to serve the needs of society, fashioned the change of the industrial sector. Ronald Coase, in 1937, introduced the concept of transaction cost. His research signified the development of ideas about exchange and more specifically the cost of securing agreements as well as coordinating, controlling and implementing them. These three economists, Wilkinson stated, have been especially influential in the development of theories surrounding networks in marketing.