Reviews, reputation, and revenue: The case of Yelp.Com
| Authors | Luca |
| Year | 2011 |
| Type | Working Paper |
| Abstract | Do online consumer reviews affect restaurant demand? I investigate this question using a novel dataset combining reviews from the website Yelp.com and restaurant data from the Washington State Department of Revenue. Because Yelp prominently displays a restaurant's rounded average rating, I can identify the causal impact of Yelp ratings on demand with a regression discontinuity framework that exploits Yelp's rounding thresholds. I present three findings about the impact of consumer reviews on the restaurant industry: (1) a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue, (2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and (3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation. I then test whether consumers use these reviews in a way that is consistent with standard learning models. I present two additional findings: (4) consumers do not use all available information and are more responsive to quality changes that are more visible and (5) consumers respond more strongly when a rating contains more information. Consumer response to a restaurant's average rating is affected by the number of reviews and whether the reviewers are certified as "elite" by Yelp, but is unaffected by the size of the reviewers' Yelp friends network. |
| URL | https://ssrn.com/abstract=1928601 |
| Tags | Archival Empirical | Consumer Decisions |
Social learning and peer effects in consumption: Evidence from movie sales
| Authors | Moretti |
| Journal | Review of Economic Studies |
| Year | 2011 |
| Type | Published Paper |
| Abstract | Using box-office data for all movies released between 1982 and 2000, I quantify how much the consumption decisions of individuals depend on information they receive from their peers, when quality is ex ante uncertain. In the presence of social learning, we should see different box-office sales dynamics depending on whether opening weekend demand is higher or lower than expected. I use a unique feature of the movie industry to identify ex ante demand expectations: the number of screens dedicated to a movie in its opening weekend reflects the sales expectations held by profit-maximizing theatre owners. Several pieces of evidence are consistent with social learning. First, sales of movies with positive surprise and negative surprise in opening weekend demand diverge over time. If a movie has better than expected appeal and therefore experiences larger than expected sales in Week 1, consumers in Week 2 update upward their expectations of quality, further increasing Week 2 sales. Second, this divergence is small for movies for which consumers have strong priors and large for movies for which consumers have weak priors. Third, the effect of a surprise is stronger for audiences with large social networks. Finally, consumers do not respond to surprises in first-week sales that are orthogonal to movie quality, like weather shocks. Overall, social learning appears to be an important determinant of sales in the movie industry, accounting for 32% of sales for the typical movie with positive surprise. This implies the existence of a large "social multiplier" such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand. |
| Keywords | Financial market, investors' behavior, household finance, monetary policy, personal savings, post-pandemic, emotional communities, wallstreetbets, attention-induced trading, gamification |
| URL | https://doi.org/10.1093/restud/rdq014 |
| Tags | Archival Empirical | Consumer Decisions |
A dynamic model of the effect of online communications on firm sales
| Authors | Sonnier, McAlister, Rutz |
| Journal | Marketing Science |
| Year | 2011 |
| Type | Published Paper |
| Abstract | Interpersonal communications have long been recognized as an influential source of information for consumers. Internet-based media have facilitated information exchange among firms and consumers, as well as observability and measurement of such exchanges. However, much of the research addressing online communication focuses on ratings collected from online forums. In this paper, we look beyond ratings to a more comprehensive view of online communications. We consider the sales effect of the volume of positive, negative, and neutral online communications captured by Web crawler technology and classified by automated sentiment analysis. Our modeling approach captures two key features of our data, dynamics and endogeneity. In terms of dynamics, we model daily measures of online communications about a firm and its products as contributing to a latent demand-generating stock variable. To account for the endogeneity, we extend the latent instrumental variable technique to account for dynamic endogenous regressors. Our results demonstrate a significant effect of positive, negative, and neutral online communications on daily sales performance. Failure to account for endogeneity results in a severe attenuation of the estimated effects. From a managerial perspective, we demonstrate the importance of accounting for communication valence as well as the impact of shocks to positive, negative, and neutral online communications. |
| Keywords | Tweet, social media marketing, social media return on investment, field experiment, television |
| URL | https://doi.org/10.1287/mksc.1110.0642 |
| Tags | Archival Empirical | Consumer Decisions | Media and Textual Analysis |
Asymmetric social iteractions in physician prescription behavior: The role of opinion leaders
| Authors | Nair, Manchanda, Bhatia |
| Journal | Journal of Marketing Research |
| Year | 2010 |
| Type | Published Paper |
| Abstract | The authors quantify the impact of social interactions and peer effects in the context of physicians' prescription choices. Using detailed individual-level prescription data, along with self-reported social network information, the authors document that physician prescription behavior is significantly influenced by the behavior of research-active specialists, or "opinion leaders," in the physician's reference group. The authors leverage a natural experiment in the category: New guidelines released about the therapeutic nature of the focal drug generated conditions in which physicians were more likely to be influenced by the behavior of specialist physicians in their network. The authors (1) find important, statistically significant peer effects that are robust across model specifications; (2) document asymmetries in response to marketing activity across nominators and opinion leaders; (3) measure the incremental value to firms of directing targeted sales force activity to these opinion leaders; and (4) present estimates of the social multiplier of detailing in this category. |
| Keywords | Experimental economics, bibliometrics, lab experiments, field experiments |
| URL | https://www.jstor.org/stable/20751550 |
| Tags | Archival Empirical | Consumer Decisions | Social Network Structure |
The effect of word of mouth on sales: Online book reviews
| Authors | Chevalier, Mayzlin |
| Journal | Journal of Marketing Research |
| Year | 2006 |
| Type | Published Paper |
| Abstract | The authors examine the effect of consumer reviews on relative sales of books at Amazon.com and Barnesandnoble.com. The authors find that (1) reviews are overwhelmingly positive at both sites, but there are more reviews and longer reviews at Amazon.com; (2) an improvement in a book's reviews leads to an increase in relative sales at that site; (3) for most samples in the study, the impact of one-star reviews is greater than the impact of five-star reviews; and (4) evidence from review-length data suggests that customers read review text rather than relying only on summary statistics. |
| Keywords | Earnings conference calls, investment decisions, nonnative accents, impressions of CEOs |
| URL | https://doi.org/10.1509/jmkr.43.3.345 |
| Tags | Archival Empirical | Consumer Decisions | Media and Textual Analysis |
Word of mouth for movies: Its dynamics and impact on box office revenue
| Authors | Liu |
| Journal | Journal of Marketing |
| Year | 2006 |
| Type | Published Paper |
| Abstract | This article uses actual word-of-mouth (WOM) information to examine the dynamic patterns of WOM and how it helps explain box office revenue. The WOM data were collected from the Yahoo Movies Web site. The results show that WOM activities are the most active during a movie's prerelease and opening week and that movie audiences tend to hold relatively high expectations before release but become more critical in the opening week. More important, WOM information offers significant explanatory power for both aggregate and weekly box office revenue, especially in the early weeks after a movie opens. However, most of this explanatory power comes from the volume of WOM and not from its valence, as measured by the percentages of positive and negative messages. |
| Keywords | Strategic disclosure, hedge funds, ownership disclosure, 13F holdings, restatement, fund skill |
| URL | https://www.jstor.org/stable/30162102 |
| Tags | Archival Empirical | Consumer Decisions |