Design of Consumer Review Systems and Product Pricing

Forthcoming in the Information Systems Research Journal

NET Institute Working Paper No. 12-10

57 Pages Posted: 24 Oct 2012 Last revised: 15 May 2015

See all articles by Yabing Jiang

Yabing Jiang

Florida Gulf Coast University

Hong Guo

University of Notre Dame

Date Written: May 5, 2015

Abstract

Consumer review systems have become an important marketing communication tool through which consumers share and learn product information. Although there is abundant evidence that consumer reviews have significant impact on product sales, the design of consumer review systems and its impact on review outcomes and product sales have not yet been well examined. This paper analyzes firms’ review system design and product pricing strategies. We formally model two review system design decisions – what rating scale cardinality to use and whether to offer granular review reports. We show that firms’ optimal design and pricing strategies critically depend on contextual characteristics such as product valuation, product mainstream level, and consumer misfit cost. Our results suggest that it is beneficial to host a review system only when the product valuation is higher than a threshold. Furthermore, firms should choose low rating scale cardinality for niche products and high rating scale cardinality for mainstream products. When consumers’ misfit cost is relatively high, including granular reports in the review system enables firms to attract the favorable consumer segment. Different pricing strategies should be deployed during the initial sale period for different product types. For niche products, firms are advised to adopt lower-bound pricing for high-quality products to take advantage of the positive word of mouth. For mainstream products, firms are advised to adopt upper-bound pricing for high-quality products to enjoy the direct profit from the initial sale period, even after taking into account the negative impact of high price on consumer reviews.

Keywords: economics of IS, electronic commerce, consumer reviews, online word-of-mouth systems, product uncertainty

JEL Classification: D42, L86, M15

Suggested Citation

Jiang, Yabing and Guo, Hong, Design of Consumer Review Systems and Product Pricing (May 5, 2015). Forthcoming in the Information Systems Research Journal, NET Institute Working Paper No. 12-10 , Available at SSRN: https://ssrn.com/abstract=2164368 or http://dx.doi.org/10.2139/ssrn.2164368

Yabing Jiang (Contact Author)

Florida Gulf Coast University ( email )

10501 FGCU Blvd South
College of Business
Fort Myers, FL 33965
United States

Hong Guo

University of Notre Dame ( email )

356 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

HOME PAGE: http://www.nd.edu/~hguo

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