Reports

Measuring the Impact of a Single Negative Consumer Review on Online Search and Purchase Decisions Through a Quasi-Natural Experiment

Marton Varga and Paulo Albuquerque, 2019, 19-103-01

Although various studies have investigated the impact of eWOM on product sales, most research has focused on the overall effect of reviews and their average rating on sales, not on the effect of one review or rating. No research has explicitly focused on quantifying the effect of one negative review on consumers’ purchase or product search decisions.

In this study, Marton Varga and Paulo Albuquerque quantify the impact of a single negative review on consumer online shopping activity at a multi-category retailer. They take advantage of a quasi-natural experiment created by how retailers update consumer-generated reviews in product pages. This “newest first” display policy enables them to compare users who searched for the product when the negative review was among the first reviews shown with users who searched for the same product when the same review was among the second set of reviews shown.

By looking at where the review is displayed instead of whether the review is posted, their estimates do not suffer from the problem of endogeneity of review valence with other demand factors. Their identification strategy tackles the problem of spurious correlation between review creation and unobserved demand shocks.

Findings

In technology and home and garden products, the detrimental impact of encountering a single negative review is two-fold: on average, the probability of continuing search to competitors increases by 10.5%, while the purchase probability of the product drops by 18.3%.

Building on these estimates, the authors predict changes in the consideration sets and derive unique elasticity-to-review values for a variety of products. They find that among all consumers of the retailer – both those who consider the product and those who do not – the elasticity of sales to a single bad review is between -2% and -23%.

These findings are important for managers who seek to understand how consumers respond to changes in online word-of-mouth content.

The authors illustrate their findings on two-dimensional product maps, offering insight into the competitive market and creating a new way to evaluate the vulnerability of products to negative eWOM in terms of sales and alternatives considered.

Marton Varga is a Ph.D. Candidate and Paulo Albuquerque is Associate Professor of Marketing, both at INSEAD.

Acknowledgments
The authors are grateful to Wharton Customer Analytics Initiative and its partners for providing us the data. They thank the participants of the 8th Workshop on Consumer Search and Switching Cost and of the 39th Annual ISMS Marketing Science Conference for their valuable comments.

Related links

The Fateful First Consumer Review
Sungsik Park, Woochoel Shin, and Jinhong Xie (2018) [Report]

Online Reviews: Star Ratings, Position Effects and Purchase Likelihood
Prasad Vana and Anja Lambrecht (2018) [Report]

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