Pump Up the Volume?
New research by Professor Hila Etzion looks at the impact of online product reviews on sales.
ANN ARBOR, Mich.—When it comes to online product reviews, more is not necessarily better, says a Ross School professor.
With the increasing popularity of user-generated online reviews of retail products and services, this form of "word-of-mouth" advertising can help a growing number of consumers in their purchasing decisions. But it can also help—or hurt—retailers.
A new study by Hila Etzion, assistant professor of business information technology at the University of Michigan's Ross School of Business, and colleague Naveen Awad of Wayne State University examined the relationship between the number of online reviews and sales.
Using data collected from a large online retailer of electronic products over a six-year period, the researchers found that the number of reviews has a significant positive effect on sales of products that are perceived favorably by consumers, while volume has a significant negative impact on sales of products with poor consumer ratings.
In other words, more reviews are good for sales of highly rated products, but bad for those with negative ratings. Retailers should consider this tradeoff when they decide whether to facilitate the growth of online reviews systems, the researchers say.
In addition, their analysis shows that the relationship between volume of reviews and sales changes over time as volume increases.
"We find that reviews have a major impact on sales---either positive or negative---only when the number of reviews posted reaches a certain threshold value," Etzion said. "Until the volume reaches this threshold, consumers deem the ratings information as unreliable, and thus changes in volume do not have a significant effect on consumer product choice."
However, once a significant number of poor reviews accumulate for a product, more bad reviews do not have an additional negative impact on sales, the researchers say. But this is not the case for products perceived more favorably, where an increase in good reviews continues to have a positive effect on sales.
The study also found that when there is enough dissimilarity among the ratings of competing products, the number of reviews does not affect sales.
"Consumers care about the volume of the reviews mainly when the averages of the ratings do not provide enough information to differentiate competing products," Etzion said. "Overall, our results can help online retailers manage their online reviews systems to maximize sales and to determine whether they should provide incentives for consumers to submit reviews."
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