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Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix

Management Science, Vol. 54, No. 3, pp. 477-491, 2008

45 Pages Posted: 15 Nov 2004 Last revised: 22 Jun 2014

Yubo Chen

Tsinghua University - School of Economics & Management

Jinhong Xie

University of Florida - Warrington College of Business Administration

Date Written: July 1, 2004

Abstract

Online consumer product review is an emerging market phenomenon that is playing an increasingly important role in consumers' purchase decisions. This paper examines a fundamental issue concerning online consumer review, i.e., the functions such reviews have for an online marketer. We argue that online consumer reviews, a type of product information created by users based on personal usage experience, can serve as a new element of marketing communications mix and work as free sales assistants to help consumers identify the products that best match their idiosyncratic usage conditions. For many products, this marketing function is impossible or very costly for traditional marketing communications to achieve. However, this new communication mode does not come without cost because it eliminates a seller's control over the content of product information accessible to consumers, and because consumer reviews may not be fully informative.

We examine four specific strategic issues: (1) when an online seller should provide consumer reviews to its customers, (2) how a seller's decision to supply consumer reviews interacts with its product assortment strategy, (3) how the seller's strategy regarding the supply of consumer reviews interacts with its traditional marketing communication strategy, and (4) what timing is best for the seller to offer consumer review information for a product.

Our results show that supplying online consumer reviews can benefit or hurt an online seller depending on product characteristics, the informativeness of the review, the seller's product assortment strategy, the seller's product value for the partially matched consumers, and consumer heterogeneity in product consumption expertise. We also show that the seller's decision to provide consumer reviews will increase its incentive to offer more complete product information to consumers through its traditional marketing communications. Finally, we discover that offering consumer review information too early leads to a lower profit.

An empirical study based on data from online sellers in different product categories provides some preliminary support for our theory.

Keywords: Online Consumer Review, Independent Product Information, Word-of-Mouth

JEL Classification: D83, L15, L86, M37

Suggested Citation

Chen, Yubo and Xie, Jinhong, Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix (July 1, 2004). Management Science, Vol. 54, No. 3, pp. 477-491, 2008. Available at SSRN: https://ssrn.com/abstract=618782

Yubo Chen (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Jinhong Xie

University of Florida - Warrington College of Business Administration ( email )

209 Bryan Hall Campus Box 117155
Gainesville, FL 32611-7166
United States
352-392-0161 Ext. 1233 (Phone)
352-846-0457 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/xie/Xie_DirectoryProfile.htm

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