Design of Consumer Review Systems and Product Pricing

Yabing Jiang () and Hong Guo ()
Additional contact information
Yabing Jiang: Lutgert College of Business, Florida Gulf Coast University
Hong Guo: Mendoza College of Business, University of Notre Dame

No 12-10, Working Papers from NET Institute

Abstract: Consumer review systems have become an important marketing communication tool through which consumers share and learn product information. Although there is abundant evidence that consumer reviews have significant impact on consumer purchasing decisions, the design of consumer review systems and its impact on review outcomes and product sales have not yet been well examined. This paper analyzes firms’ review system design and product pricing strategies. We formally model two design features of consumer review systems – rating scale and disclosure of specific product attribute information. We show that firms’ optimal strategies critically depend on contextual characteristics such as product quality, product popularity, and consumer misfit cost. Our results suggest that firms should choose a low rating scale for niche products and a high rating scale for popular products. Firms should disclose specific product attribute information to attract the desired consumer segment when product quality is low relative to misfit cost, and the resulting optimal size of the targeted consumer market increases in product popularity and product quality. Different pricing strategies should be deployed during the initial sale period for different product types. For niche products, firms are advised to adopt lower-bound pricing for high-quality products to take advantage of the positive word of mouth. For popular products, firms are advised to adopt upper-bound pricing for high-quality products to enjoy the direct profit from the initial sale period, even after taking into account the negative impact of high price on consumer reviews.

Keywords: economic modeling; e-commerce; consumer reviews; online word of mouth; product uncertainty (search for similar items in EconPapers)
JEL-codes: D42 L86 M15 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2012-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.NETinst.org/Jiang_12-10.pdf (application/pdf)
no

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:1210

Access Statistics for this paper

More papers in Working Papers from NET Institute
Bibliographic data for series maintained by Nicholas Economides ().