Online Product Reviews: Implications for Retailers and Competing Manufacturers

Abstract

T his paper studies the effect of online product reviews on different players in a channel structure. We consider a retailer selling two substitutable products produced by different manufacturers, and the products differ in both their qualities and fits to consumers' needs. Online product reviews provide additional information for consumers to mitigate the uncertainty about the quality of a product and about its fit to consumers' needs. We show that the effect of reviews on the upstream competition between the manufacturers is critical in understanding which firms gain and which firms lose. The upstream competition is affected in fundamentally different ways by quality information and fit information, and each information type has different implications for the retailer and manufacturers. Quality information homogenizes consumers' perceived utility differences between the two products and increases the upstream competition, which benefits the retailer but hurts the manufacturers. Fit information heterogenizes consumers' estimated fits to the products and softens the upstream competition, which hurts the retailer but benefits the manufacturers. Furthermore, reviews may also alter the nature of upstream competition from one in which consumers' own assessment on the quality dimension plays a dominant role in consumers' comparative evaluation of products to one in which fit dimension plays a dominant role. If manufacturers do not respond strategically to reviews and keep the same wholesale prices regardless of reviews (i.e., the upstream competition is assumed to be unaffected by reviews), then, we show that reviews never hurt the retailer and the manufacturer with favorable reviews, and never benefit the manufacturer with unfavorable reviews, a finding that demonstrates why reviews' effect on upstream competition is critical for firms in online marketplaces.

Online Reviews Matter: How Can Platforms Benefit from Online Reviews?

“…On the one hand, if the platform cannot benefit from online reviews, they can establish other policies and rules, just like punitive measures and reputation management, to strengthen supervision and control of low-quality products. On the other hand, if the platform can benefit from online reviews, we conclude the result that the platform always benefits from an improvement in accuracy rates of online reviews is same with the result that was suggested by Young Kwark et al [49]. They can improve the accuracy rate of online reviews to improve their quality and revenue by improving the quality of the voting system and the reputation system or more often providing cash back and return coins.…”

Effects of multiple psychological distances on construal and consumer evaluation: A field study of online reviews

“…We therefore expand the boundary of CLT's application to a context that offers great potential for studying psychological distance and evaluation. The majority of prior studies on online reviews has focused on understanding the consequences of online reviews, such as facilitating consumer decision making (Hu, Liu, & Zhang, 2008), driving firm sales (Chevalier & Mayzlin, 2006; Zhu & Zhang, 2010) and affecting market competition (Kwark, Chen, & Raghunathan, 2014). Our study, in contrast, examines the antecedents of online review characteristics (e.g., Chen & Kirmani, 2015).…”

The Impact of Quality Perception and Consumer Valuation Change on Manufacturer's Optimal Warranty, Pricing, and Market Coverage Strategies

“…Consumers choose to put more emphasis on the realized quality, when the weight on the realized quality, β, is high. A similar weighted average expression can be found in Kwark, Chen, and Raghunathan (), where shoppers' expected quality difference is modeled from two information sources.…”