February 14, 2018
Darla Moore School of Business Management Science Assistant Professor Pelin Pekgun wanted to see just how important consumer reviews are to a product’s ability to compete on the market. She was surprised by what she found: In some instances, it is actually possible for an objectively lower quality product to sell for more than a higher quality product from a different company because of the influence of user reviews.
“I wasn’t expecting reviews to make such a big difference as giving an opportunity to a lower quality firm to keep its customer base,” Pekgun said of the findings.
Here’s the breakdown: If two competing companies are each selling a similar product — a smart phone, for example — and each has its own set of consumers who are relatively loyal to whichever company, consumers of the company with the lower quality product are less likely to switch to the other company despite it offering an objectively slightly better product because of the weight they give to its negative user reviews.
“In this study, we see that the impact of the negative reviews is mattering more than the positive ones in consumers’ minds,” she said. “Losses matter more than gains.”
This bias toward negative reviews gives the company with the lower quality product the power to charge slightly more, as long as its initial consumer base is relatively larger.
User reviews have really given consumers the opportunity to choose products based on more than just their objective characteristics and what a product’s company says about it. This consumer conversation answers more of the consumers’ questions and gives them more to consider when buying a new product. Particularly in the case of experience goods such as smartphones, consumers can learn from the experiences of others and update their expectations accordingly.
“Reviews have the potential to intensify competition by reducing the uncertainty of expected experience,” Pekgun said.
The number of reviews a product has can also affect consumer confidence. For example, consumers are more likely to trust the overall rating of a product with 100 reviews than one with 10 reviews, which can give further edge to the company with the lower quality product.
The main takeaway for businesses that deal with user reviews is to be aware of the reviews. Respond to the negative ones especially in order to reduce a consumer’s negativity bias, and pay attention to the number of reviews a product has.
This study was done in conjunction with Management Science Professor Michael Galbreth and University of Arizona Marketing Associate Professor Bikram Ghosh. Pekgun is now working with Marketing Professor Ramkumar Janakiraman and Ph.D. student Sanghoon Cho to look at the competitive effects of negative and positive user reviews on hotel bookings and prices.
By Madeleine Vath