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

Abstract

As a new type of word-of-mouth information, online consumer product review is an emerging market phenomenon that is playing an increasingly important role in consumers' purchase decisions. This paper argues that online consumer review, a type of product information created by users based on personal usage experience, can serve as a new element in the marketing communications mix and work as free “sales assistants” to help consumers identify the products that best match their idiosyncratic usage conditions. This paper develops a normative model to address several important strategic issues related to consumer reviews. First, we show when and how the seller should adjust its own marketing communication strategy in response to consumer reviews. Our results reveal that if the review information is sufficiently informative, the two types of product information, i.e., the seller-created product attribute information and buyer-created review information, will interact with each other. For example, when the product cost is low and/or there are sufficient expert (more sophisticated) product users, the two types of information are complements, and the seller's best response is to increase the amount of product attribute information conveyed via its marketing communications after the reviews become available. However, when the product cost is high and there are sufficient novice (less sophisticated) product users, the two types of information are substitutes, and the seller's best response is to reduce the amount of product attribute information it offers, even if it is cost-free to provide such information. We also derive precise conditions under which the seller can increase its profit by adopting a proactive strategy, i.e., adjusting its marketing strategies even before consumer reviews become available. Second, we identify product/market conditions under which the seller benefits from facilitating such buyer-created information (e.g., by allowing consumers to post user-based product reviews on the seller's website). Finally, we illustrate the importance of the timing of the introduction of consumer reviews available as a strategic variable and show that delaying the availability of consumer reviews for a given product can be beneficial if the number of expert (more sophisticated) product users is relatively large and cost of the product is low.