This year I am really going to sport more, eat healthier and lose 10 pounds. New Year’s resolutions, we all love them. Losing weight and staying fit occur on most people’s top 10 list, and sales in sport attributes surprisingly increases in the months after Christmas and New Year. In order to stick to my new year’s resolutions, I wanted to purchase new running shoes. Nowadays, thousands different sorts of shoes are being offered on the internet. With the large amount of running shoes being offered, a third-party product review by for instance Runner’s World would come in handy. Runner’s World is a dominating consumers website and has got an important role in buying behavior of a customer interested in running attributes. The website have got an annual running shoe review and ranking which has got an impact on sales of the companies.
With the large amount of products being offered, product reviews by third parties are growing in popularity. The emerge of these intermediaries is due to information asymmetry between a seller and a buyer. A product review can provide product information like features and prices, but can also adopt a recommendation format. Nowadays, due to the Internet customers can easily find and compare these reviews by different sorts of sources. A third-party review are important in customer decision making, where a review can make or break a product. Multiple companies are addressing these issues concerning strategic responses to these product reviews. Should a company increase its advertising expenditure when receiving a ‘Editor’s Choice’ award to broadcast its victory? And should the ‘losing products’ cut prices in order to compensate not winning?
The article by Chen and Xie (2005) examines how and when a company should adapt its marketing strategies to different third-party product reviews. The authors explain the impact of the intermediaries on companies marketing strategies. In their research, they made an interesting discovery about the interaction between pricing an advertising responses. The authors state that advertising a winning product, does not always have the expected outcome. Advertising the winning product with for instance ‘Editors Choice’ award does not only increases the products’ advertising effecting, it can also have a negative outcome. It is possible that the competitors with ‘losing products’ are motivated to cut prices so they can hurt the ‘winning product’ with an intensified price competition. Therefore, companies need to be aware of this possible interaction.
Writing this blog still have not made me buy a running shoe, but it sure did made some interesting things clear. While the company with the ‘Editors Choice’ running shoe is spreading the win, other comparable shoes can become cheaper. This can initiate a price competition and could eventually lower the price of the number one running shoe. To summarize this, it is better to wait another year in order to buy the best shoe at a good price.
Chen, J., Xie, J., (2005) Third-Party Product Review and Firm Marketing Strategy, Marketing Science. vol 24(2). pp: 218-240