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Dynamics that affect consumers’ online product opinions

May 3, 2015 356050lo Leave a comment

Have you ever given your opinion online? Most likely, your answer will be no, even though current developments in technologies have made it easier to share your thoughts online. The 90-9-1 rule entails that in any group of 100 people, there is on average one person that produces 90% of the content, nine persons that provide 10% of the content, and the remaining 90% never contributes to anything online. That is why the last group is better known as ‘the lurkers’ – they merely observe and follow the contributions of the first 10%. Much research has been going on to study the reasons for being a lurker and how these lurkers can be delurked (e.g. Xia et al., 2012). Furthermore, the applicability of the 90-9-1 rule is subject to debate and consequently changes to this rule such as 70-20-10 or 80-19.99-0.01 have been proposed. The fact remains that there are still many more people that do not contribute their thoughts online.

What drives this small number of people to publish their thoughts online and how do the previously posted reviews affect their contributions? Moe and Schweidel (2012) studied how previously posted ratings can influence someone’s posting behavior in terms of whether to contribute and what to contribute. They focused on consumers’ posting behavior after they have used the product and formed their post-purchase product assessment. The dataset used consists of 3,681 contributions of 2,436 customers of an online retailer of bath, fragrance, and home products over the course of six months. A sample of 200 products was taken, which included 100 most rated products and 100 additional products which were chosen at random. The online contributions included both a score on a five-star scale and a review text.

The results of their study are the following. In general, Moe and Schweidel (2012) observed that the tendency to post was different across individuals and individuals preferred different posting environments. Individuals who were not used to post product opinions were more positive and exhibited bandwagon behavior. Frequent posters (activists) were controlling the online product rating environment by contributing more negative and differentiated opinions compared to the opinions that were expressed before. Activists increasingly participated over time, whereas the involvement of other group decreased over time. Positive environments led to more contributed opinions, and negative environments decreased the amount of opinions contributed. Additionally, Moe and Schweidel (2012) found that the contributed content was subject to adjustment effects, which entails that the contributed thoughts affect the content of future postings. Furthermore, they found that the posting decision was subject to selection effects that can affect the composition of the posting population (Moe & Schweidel, 2012).

Previously private conversations about products have become publicly available to potential customers and the firm. Before, firms have never been able to get so close to their customers and engage them in such a relevant manner. Increasing customer insight and engagement is highly important in influencing the success or failure of a product. Knowledge gained on customer experiences can aid the firm in driving benefits throughout the value chain by forecasting demand and creating product promotions, among other benefits. Therefore, the previous results are important for consumers and firms. Consumers and firms should take into consideration that online product reviews do not always reflect the opinion of the whole customer base, but rather the opinion of the vocal and more negative activists. In addition, firms should not overreact to negative feedback because there is a high chance that the more positive majority may have chosen not to participate in the online forum. In order to deal with negative feedback, the firms could provide the most silent customers with incentives for posting reviews.

Sources:

Xia, Huang, Duan & Whinston (2012). To Continue Sharing or Not to Continenue Sharing? An Empirical Analysis of User Decision in Peer-to-Peer Sharing Networks. Information Systems Research, 23(1):247-259.

Moe, W.W. & Schweidel, D.A. (2012). Online Product Opinions: Incidence, Evaluation, and Evolution. Marketing Science, 31(3):372-386.

Articles

Does Chatter Really Matter?

April 24, 2015 356050lo Leave a comment

Let’s say you are planning to buy a new HP laptop. You have spent quite some time comparing laptops online and you have found that the HP Pavilion 17-f240nd perfectly matches your needs. The reviews that you have read seemed truthful and you have a feeling that you will be satisfied with your new laptop. You are glad to know how other consumers experience the HP Pavilion and what they all use it for. The internet with its online product reviews and ratings have made your life so much easier! After you have used your new HP you might even contribute a review, as you want others to know how you feel about the product. Even when you are dissatisfied with it, you might write a review as you want to prevent others from buying it. Clearly, product reviews can help consumers in making decisions and thus affect firm sales. However, are these product reviews also related to other important performance metrics of the firm?

Tirunillai and Tellis (2012) studied the relationship between user-generated content (UGC) and stock market performance of the firm. They examined product reviews and ratings (chatter) because these are rich in product-related information. Consumers frequently post videos or blogs about certain products, however these often contain too much information which is not always relevant to a specific product. Tirunillai and Tellis (2012) argued that the signal-to-noise ratio is too low in these types of UGC and is therefore not taken into consideration in their research. Various markets were taken into account over a period of four years (from June 2005 to January 2010). These markets range from personal computer and data storage, to toys and footwear. Among other, consumer reviews for HP, SanDisk, Mattel, and Nike were examined.

To start with, they found that most of the online chatter was positive. This result was found across all markets with an average of 75% of chatter being positive. Moreover, the volume of both positive and negative chatter showed an upward trend. This is beneficial for firms and investors, because the other findings show that the volume UGC predicts abnormal returns and increases in trading volume on the short-term as well as on the long-term. However, negative chatter has a significant negative effect on returns, whereas positive UGC has no significant effect on returns. Offline television advertising can be used to increase to volume of chatter and decrease negative chatter at the same time. Lastly, negative consumer chatter increases idiosyncratic risk, which is asset specific risk that is not correlated to market risk. Logically, firms should keep this risk at a minimum in order to not discourage investors.

The previous results are important for investors and managers. Investors that experience information asymmetry should turn to UGC in order to find more information about the firm’s performance. UGC often includes information that is not (yet) widely known and more importantly, when UGC includes a lot of negative chatter, investors should now know they should not invest in this particular firm. For managers it is important that they trace the negative chatter and take corrective action as soon as possible, in order to prevent losses in shareholder value. For instance, to counter negative chatter about a product, the firm can start broadcasting television ads. Based on the study and our own experience, we can conclude that consumer chatter is not only informative for other consumers, but also for firms and investors.

Source:

Tirunillai, S., & Tellis, G. J. (2012). Does chatter really matter? Dynamics of user-generated content and stock performance. Marketing Science, 31(2), 198-215.

Articles, Business Case, News

H&M’s Digital Move

March 28, 2015 356050lo Leave a comment

Hennes & Mauritz, better known as H&M, is a Swedish multinational retail clothing company that most probably does not need an introduction. It was founded in 1947 and is still very successful worldwide, mainly due to putting all of its customers central. H&M’s online presence in terms of a web shop, a smartphone application, and several social media accounts plays a major role in H&M’s success, as this has enabled H&M to continuously observe and interact with its customers. The 31^st of March, H&M will come with something new to take its customer relationships to the next level. Namely, it will introduce a digital customer loyalty program in the Netherlands. This will make the Netherlands the second country in the world with a H&M loyalty program. According to the country manager of H&M in the Netherlands, this move is now made in order to capitalize on the relatively high amount of online orders of customers in the Netherlands.

The past years loyalty programs have become more and more digitalized. The non-digital loyalty programs involved getting stamps for every €5 spent. They evolved into digital loyalty programs with member cards that had to be scanned after every purchase in order to receive loyalty points. Currently, there are loyalty cards that have to be connected to an online account to collect customer demographics information. Clearly, loyalty cards came into existence to bind customers to a certain business. Over the years this mindset has changed, and at this time businesses primarily want to have as much relevant customer information as possible to be able to better adapt their products and deals to their customers.

H&M is taking a slightly different but more advanced approach with its loyalty program ‘H&M Club’, by integrating a customer loyalty card in the H&M application. Joining the club is free, and when one has joined the club, he or she will receive one point for every euro spent, in addition to 50 free “welcome points”. The points can be redeemed for weekly changing discounts, but more importantly, these points can also be exchanged for access to exclusive events. Customers are given the opportunity to attend designer events in cities such as New York or Paris, be present during H&M photoshoots, or get a guided tour at H&M’s headquarter in Stockholm. This method has been selected because it is more sustainable not to have an actual member card, but the main reason is that customers are demanding more and more engagement and transparency from H&M.

H&M’s loyalty program seems to be a promising addition to H&M’s existing business model, especially since it offers its customers the opportunity to increasingly engage with the brand. The free welcome points give the customers a head start which may lead to a greater use of the program, as the rewards become easier to reach. Furthermore, points can be redeemed in different quantities, depending on the chosen deal. Moreover, the discounts and events offered by the H&M Club are most likely treats that customers would not spend their own money on and can lead to customers buying things that they would not have considered buying before. The previously mentioned components of the H&M Club have been cited by scholars as important levers of loyalty (Nunes & Drèze, 2006). Based on this and H&M’s long-term success, its loyalty program is likely to succeed.

Sources:

http://about.hm.com/

http://www.glamour.nl/fashion/nieuws/artikel/punten-sparen-bij-de-h-m-club-2451

http://www.metronieuws.nl/mode/2015/03/punten-sparen-bij-hm

http://www.telegraaf.nl/vrouw/mode/23837046/__HM_lanceert_digitale_klantenkaart__.html

Nunes, J.C., & Drèze, X. (2006) Your Loyalty Program Is Betraying You. Harvard Business Review, 84(4), 124.