The Effect of Word of Mouth on Sales: Online Book Reviews

Abstract

The creation of online consumer communities to provide product reviews and advice has been touted as an important, albeit somewhat expensive component of Internet retail strategies. In this paper, we characterize reviewer behavior at two popular Internet sites and examine the effect of consumer reviews on firms' sales. We use publicly available data from the two leading online booksellers, Amazon.com and BarnesandNoble.com, to construct measures of each firm's sales of individual books. We also gather extensive consumer review data at the two sites. First, we characterize the reviewer behavior on the two sites such as the distribution of the number of ratings and the valence and length of ratings, as well as ratings across different subject categories. Second, we measure the effect of individual reviews on the relative shares of books across the two sites. We argue that our methodology of comparing the sales and reviews of a given book across Internet retailers allows us to improve on the existing literature by better capturing a causal relationship between word of mouth (reviews) and sales since we are able to difference out factors that affect the sales and word of mouth of both retailers, such as the book's quality. We examine the incremental sales effects of having reviews for a particular book versus not having reviews and also the differential sales effects of positive and negative reviews. Our large database of books also allows us to control for other important confounding factors such as differences across the sites in prices and shipping times.

Keywords: Advertising, word-of-mouth, source credibility, internet marketing

JEL Classification: M31, D81, D83