Measuring Product Type with Dynamics of Online Review Variances: A Theoretical Model and the Empirical Applications
NET Institute Working Paper 14-03
41 Pages Posted: 10 Apr 2014 Last revised: 30 Oct 2017
Date Written: September 18, 2014
A significant body of literature in information systems, marketing, and economics has shown the important implication of the distinction between experience products and search products (“product type”) on consumer information search, marketplace design, and firm strategy. However, how to empirically measure product types remains a challenge, and this challenge is further complicated by the growth of online commerce and the increasing availability of online reviews that have transformed the nature of many products and altered the perception of these products.
The objective of this research is to propose an online product review-based measure that could accurately reflect consumers’ perception of a product, as search or experience dominated product. Based on the definitions of search and experience products — whether information can be easily transferred or not — we propose a data-driven method that can be used to infer product type from statistical analyses of online product reviews. Our theoretical analyses indicate that the variance of the ratings should decrease as more consumers rate a pure search product; for experience products however, the variance of the ratings may remain constant or increase depending on the importance of the experience attributes in determining consumer utility. We demonstrate the empirical applications of this approach at the category, product, and attribute levels using product reviews data from Amazon.com, Yelp.com, and Ctrip.com, respectively. In addition, a user study conducted on Amazon Mechanical Turk shows our review-based measure to outperform Nelson’s (1970) product classification, which historically has been the standard in determining product type. Overall, this new measure provides an easy to implement, less subjective and more accurate measure of product type. Therefore, researchers and practitioners can use this measure to better understand how consumers perceive products and to design strategies accordingly.
Keywords: Online Product Reviews, Product Type, Product Quality, Consumer Preference, User Generated Content
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