Do Online Reviews Affect Product Sales? The Role of Reviewer Characteristics and Temporal Effects
University of Wisconsin - Eau Claire - Department of Accounting & Finance; Singapore Management University
Ling Liu Jr.
University of Texas at Dallas
University of Texas at Arlington; University of Rochester - Simon School of Business
January 7, 2008
Information Technology & Management Vol. 9 No. 3, pp. 201-214, September 2008.
Online product reviews provided by consumers who previously purchased products have become a major information source for consumers and marketers regarding product quality. This study extends previous research by conducting a more compelling test of the effect of online reviews on sales. In particular, we consider both quantitative and qualitative aspects of online reviews, such as reviewer quality, reviewer exposure, product coverage, and temporal effects. Using transaction cost economics and uncertainty reduction theories, this study adopts a portfolio approach to assess the effectiveness of the online review market. We show that consumers understand the value difference between favorable news and unfavorable news and respond accordingly. Furthermore, when consumers read online reviews, they pay attention not only to review scores but to other contextual information such as a reviewer's reputation and reviewer exposure. The market responds more favorably to reviews written by reviewers with better reputation and higher exposure. Finally, we demonstrate that the impact of online reviews on sales diminishes over time. This suggests that firms need not provide incentives for customers to write reviews beyond a certain time period after products have been released.
Number of Pages in PDF File: 33
Keywords: Word-of-Mouth, Online Product Reviews, Transaction Cost Economics, Uncertainty Reduction, Efficient Market, Portfolio Analysisworking papers series
Date posted: January 8, 2009 ; Last revised: October 17, 2012
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