How Does the Variance of Product Ratings Matter?
28 Pages Posted: 7 May 2009 Last revised: 28 Sep 2011
Date Written: September 19, 2010
Abstract
This paper examines the informational role of the variance of product ratings. We first build a theoretical model on how firm strategies and market outcomes respond to product ratings, and find that a higher variance of ratings increases subsequent demand and profit if, and only if, the average rating is low. We then discuss alternative assumptions on consumer behavior and market structure, and show that the primary forces at work in the baseline model are robust in many variations of the model. Finally, we provide some empirical evidence that is consistent with the model. The paper overall provides a unifying framework that helps managers to understand how variance of ratings, through its interaction with the average rating, plays a critical role in shaping consumers’ purchase decisions. It also points out that variance of product ratings can be used as an effective marketing tool in shaping a product’s perceived image among consumers.
Keywords: Theoretical Modelling, Information Transmission, Product Ratings
JEL Classification: M31, L15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Promotional Chat on the Internet
By Dina Mayzlin
-
The Effect of Word of Mouth on Sales: Online Book Reviews
By Judith A. Chevalier and Dina Mayzlin
-
The Effect of Word of Mouth on Sales: Online Book Reviews
By Judith A. Chevalier and Dina Mayzlin
-
Word-of-Mouth for Movies: Its Dynamics and Impact on Box Office Revenue
By Yong Liu
-
Do Online Reviews Matter? - an Empirical Investigation of Panel Data
By Wenjing Duan, Bin Gu, ...
-
Strategic Manipulation of Internet Opinion Forums: Implications for Consumers and Firms
-
Self Selection and Information Role of Online Product Reviews
By Xinxin Li and Lorin M. Hitt
-
By Chris Forman, Anindya Ghose, ...
-
By Michael Trusov, Randolph E. Bucklin, ...