The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms


Let your fingers do the talking

With the rise of the internet came a distinct and new opportunity – not only could organizations more easily reach their, but customers could express their thoughts directly to the world with online feedback mechanisms.

Word-of-mouth has become digitized into a large-scale internet-based feedback network, enabling individuals to share their reviews of companies, products, services, individual sellers and more. Not long ago, consumers would make their purchasing decisions based on advertisements or advice from experts. Now, however, the author suggest that evidence points to consumers are increasingly relying on the reviews of others online.

As a result of this, the author (Dellarocas 2003) suggest that management now need to understand how these online feedback mechanisms affect their organizational activities, including:

  • Brand building and customer acquisition
  • Product development and quality control
  • Supply chain quality assurance

This paper discusses the new possibilities and challenges these feedback mechanisms pose and identifies how these online feedback mechanisms differ from word-of-mouth networks. It also provides a perspective from game theory and economics, focusing on feedback systems in online marketplaces, and identifies opportunities this new area brings.


Online feedback vs. word-of-mouth networks

The author propose the following difference between online and traditional feedback systems, which includes:

  • The unprecedented scale and reach of online systems
  • The ability of their designers to precisely control and monitor their operation
  • New challenges, such as the unpredictability and unreliability of online identities and the almost complete, and lack of contextual cues of subjective information


Case Study: eBay

Following an analysis of the literature available on the eBay’s feedback mechanism, the author found that:

  • Feedback profiles affect both the prices and likelihood of sale
  • The effect of feedback on prices and likelihood sale is increased for more risky sale transactions and for items that cost more.
  • The components of eBay’s feedback mechanism that influence buyer behaviour most are the total number of positive and negative ratings, and the number of recently posted negative reviews.


Reputation in Game Theory & Economics

Based on a thorough analysis and application of game theory on reputation, the author put forward the results that are most relevant for online feedback mechanism designs.

The author suggest that incentives to maintain a reputation reduce over time and eventually completely diminish. The author attribute this to the “trade-off between current restraints and the promise of future gains”, in a limited number of repeated games.

Solutions proposed for this includes: (1) Establish community membership rules that produce good behaviour, and (2) assigning a value to reputation that can be bought and sold, such that ncourages the maintenance of good reputation.

What’s good about this paper?

In addition to conducting an extensive literature review on the topic, the author of this paper collected the most valuable results of previous work and propose solutions to problems detected. It was also interesting that the author used a different perspective, game theory & economics to evaluate reputation, as opposed to the usual marketing and branding perspectives.

A suggestion for future research to extend on this paper would be to expand the focus from solely online feedback in online marketplaces to more types of online feedback mechanisms.

 

Dellarocas, C 2003, ‘The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms’, Management Science, vol. 49, no. 10, pp. 1407 – 1424, viewed 4 March 2017, <http://www.jstor.org.eur.idm.oclc.org/stable/pdf/4134013.pdf&gt;.

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