The Heterogeneous Effect of WOM on Product Sales: Why the Effect of WOM Valence Is Mixed?

Abstract

Previous literature on WOM has consistent findings on the positive and significant effect of WOM volume on product sales, but literature on WOM valence has been mixed. In this study, we explain the reason for the mixed effect of WOM valence on product sales by considering heterogeneous characteristics of products, especially in a movie market, by segmenting products into mass and niche movies. We find a significant effect of WOM valence on box office revenue only in the case of niche movies, which have relatively smaller marketing budgets than mass movies. Our findings suggest that as marketing communication channels become more diverse with larger marketing budgets, the effect of online WOM valence on product sales can be diluted. In addition, we find that the effect of WOM volume on box office revenue is greater for mass movies, suggesting that consumers place greater credibility on products with larger WOM volume, especially for experience goods of uncertain quality. Our findings explain the weak relationship between WOM valence and product sales, which have been controversial in WOM literature, and broaden our understanding of WOM effect on product sales.

Keywords: Word of mouth (WOM), WOM valence, motion picture industry, movie industry