Under Review
Monday, June 19, 2017
It should come as no surprise that online product reviews correlate closely with purchasing decisions and sales, making them increasingly important to the bottom line of companies with online retailing platforms. However, what is the incentive for individual consumers who post their feedback and opinions on products?
Zaiyan Wei, an assistant professor in the management information systems area at Purdue University’s Krannert School of Management, addresses that question in “Production of Online Word of Mouth: Peer Effects and the Moderating Role of User Characteristics,” a working paper coauthored with Yang Wang, Paulo Goes and Daniel Zeng of the University of Arizona.
The motivation should seem obvious for third-party professionals who write online reviews as a source of income, free or discounted products, or other merchant rewards. Still, the economic tendency of free riding — doing less work individually within a larger group or collective — can often be a byproduct on the crowded platform of online reviews.
“Online reviews are public goods, so there are conflicting incentives for people to contribute, especially among a large base of users,” Wei says. “That can create the incentive for an individual to free ride the contributions of others and post fewer reviews.”
Instead, Wei and his colleagues focus on the network effect in the production of online product reviews.
“Regardless of these various motivations, we find that peer effects play a central role in individuals’ incentives to post online reviews,” he says. “Like other forms of user-generated content, reference groups such as online friends and followers significantly influence a person’s review-posting behavior. Some people may be encouraged to post more reviews in an effort to increase their social capital and maximize its benefits.”
In contrast to previous studies, Wei says, the researchers were able to ground their findings not only in theory, but also in empirical evidence. “We leveraged a natural experiment that led to an expansion in the user population of a major online review platform to better understand the trade-off between the two conflicting incentives.”
The largest provider of third-party reviews in China, Douban.com, experienced a sudden increase in the number of registered users in August 2009 when the largest social networking platform in the county, the QZone of Tencent.com, introduced a web application for book reviews that granted it access to the accounts of Douban users.
“This exogenous shock, the unexpected merge of two large-scale and influential networks, provided us with a unique opportunity to study an individual's incentive to contribute to online reviews,” Wei explains.
“We found that a larger population of audience and peer review writers causally led to more reviews posted, higher and more diverse ratings assigned, and reviews of higher quality by the users. We additionally found that these effects were moderated by user characteristics of activeness, expertise and popularity.”
Wei says the study also has important implications for platforms that rely on users' contributions, as well as for companies involved in the management of online customer responses.
“If we have a better understanding of individuals' incentives to post online reviews, we can design platforms that facilitate more efficient business operations,” he says. “The ultimate goal of such platforms is to encourage users to communicate and contribute, and our results can help companies adopt strategies to increase their base audience and promote more activity among targeted users.”
An abstract and PDF download of “Production of Online Word of Mouth: Peer Effects and the Moderating Role of User Characteristics” is available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2899452.
Writer: Eric Nelson, nelsoner@purdue.edu
Source: Zaiyan Wei, zaiyan@purdue.edu