Does Collaborative Filtering Technology Impact Sales? Empirical Evidence from Amazon.Com

33 Pages Posted: 26 Jul 2007

See all articles by Pei-Yu Chen

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems

Shin-yi Wu

Nanyang Technological University (NTU) - Nanyang Business School

Date Written: July 8, 2007

Abstract

This paper investigates the impact of collaborative-filtering-based recommendation systems and consumer feedback mechanisms, two technologies commonly adopted by online retailers, on sales. With data from Amazon.com, we find evidence that more collaborative-filtering-based recommendations are associated with higher sales at Amazon.com, while sales also contributes to recommendations. On the other hand, consumer ratings do not directly correlate to sales. Instead, high ratings that are validated by a large number of reviews have a positive effect on sales. Furthermore, we find that the effects of collaborative-filtering-based recommendations on sales are stronger for books that have fewer reviews and are less popular. Because less-reviewed, and less-popular books generally have less information available and are usually less accessible to buyers when compared to well-reviewed best sellers, recommendations based on collaborative filtering technology may be a more important source of information for buyers. This finding suggests that collaborative filtering technology has the potential to make up for the inefficiency of consumer feedback mechanisms by supplementing information for consumers to make decisions. Our findings also suggest that an efficient and effective selling strategy is to promote early sales, especially to customers with a long history of book buying because sales to someone with no history provides little data for collaborative filtering. Overall, our results provide important strategic implications for vendor strategies to design and use these technologies.

Keywords: collaborative filtering technology, recommendation systems, feedback mechanisms, digital Word-of-Mouth, search costs

Suggested Citation

Chen, Pei-Yu and Wu, Shin-yi, Does Collaborative Filtering Technology Impact Sales? Empirical Evidence from Amazon.Com (July 8, 2007). Available at SSRN: https://ssrn.com/abstract=1002698 or http://dx.doi.org/10.2139/ssrn.1002698

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

Shin-yi Wu (Contact Author)

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Singapore, 639798
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
646
Abstract Views
3,302
rank
39,467
PlumX Metrics