Editor’s note: This is an edited version of a post that originally appeared on the University of Denver’s Daniels College of Business Web site. The original post can be found here under the title, “What brand and marketing managers need to know about online customer reviews; how they influence purchase decisions.”
New research from the University of Denver’s Daniels College of Business finds that the nature of products, a product’s brand, reviewers’ credibility and the structure of online customer reviews all significantly impact consumer decision-making and, subsequently, a company’s bottom line in terms of sales. The prevalence and popularity of websites that allow consumers to discuss, rate and review products, such as Yelp, Amazon and TripAdvisor, have made it increasingly important for managers to understand how online consumer reviews influence consumer evaluations.
In his research, “The Effect of Review Valence and Variance on Product Evaluations: An Examination of Intrinsic and Extrinsic Cues,” to be published in February/March 2017 issue of the International Journal of Research in Marketing, Assistant Professor Ali Besharat explores how the rating and variance in reviews affect the decision process. His findings show that the rating (valence) and variance information must be presented concurrently. Otherwise, they lead to erroneous assumptions by consumers. For example, imagine two books received a similar number of reviews and the average consumer rating for both is the same (four-star). If the first book with four out of five stars received 1,000 consistent positive four-star ratings, consumers are persuaded by the data. However, if the second book has four out of five stars but 600 of the ratings are extremely positive (five-star), 200 of the ratings are positive (four-star), and 200 are extremely negative (one-star), the high levels of variance systematically lead to misperceptions about the average rating of this product.
In addition, his research finds that when review variance is high, brand equity nullifies the influence of source credibility on purchase intention. “In the case of high online review variance, we find that when brand equity is high – Nike for example – then reviewer credibility does not influence consumers’ purchase intentions,” Besharat says. Alternatively, when a consensus among reviews exists (low variance), source credibility significantly influences consumers’ purchase intentions for both high and low brand equity products. “When a consensus among reviews exists (low variance), reviewer credibility emerges as a significant diagnostic cue,” Besharat says.
Besharat and his colleagues also find that utilitarian products – or items purchased for practical uses like toilet paper or groceries – are more affected by lack of consensus among consumer opinions than hedonic products purchased for pleasure, such as perfume.
“It would be prudent for managers of utilitarian products to investigate the root cause of the variance early on in the introduction of a product,” Besharat says. In this case, managers may choose to provide additional product information or perhaps bolster a product’s warranty in an attempt to offset the uncertainty that stems from review variance.
New research by Ana Babić Rosario, assistant professor of marketing, confirms Besharat’s findings and demonstrates that a wide variance in consumer opinions has a detrimental effect on product sales. These results are based on data collected over the last 15 years from more than 40 different online platforms, including Amazon, Netflix, Facebook and Allocine.fr, and covering 26 product categories. Babić Rosario and colleagues’ research, “The Effect of Electronic Word of Mouth on Sales: A Meta-Analytic Review of Platform, Product and Metric Factors” was published in the June 2016 issue of the Journal of Marketing Research.
“The reason why variability of reviews can harm sales more than negativity is that electronic world of mouth, in theory, is a way for consumers to reduce risk and uncertainty, which does not happen when other consumers’ feedback is highly inconsistent,” she says.
Her study also has implications for product managers. “When considering the potential impact of online consumer opinions on their product sales, product managers should pay particular attention to the financial risk associated with their good or service and the stage in the product’s life cycle. It is particularly relevant to monitor comments on e-commerce and review platforms in the early stages of the product life cycle,” Babić Rosario says. “Platform managers could encourage consumers to provide more information about themselves and bring online customer reviews to the forefront without overly structuring them,” she says.
Babić Rosario’s findings should be of interest to product and platform managers; Internet and social media monitoring agencies (e.g., Keller Fay Group, Nielsen BuzzMetrics); and academic researchers. Based on her study, she advises: (1) primarily monitoring the volume and variance (consumer disagreement) of online customer reviews and (2) acknowledging other elements of the marketing mix (such as product prices, promotions and previous sales) when estimating potential effects of reviews on sales.