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Impact of Average Rating on Social Media Endorsement: The Moderating Role of Rating Dispersion and Discount Threshold


This is a review of paper “Impact of Average Rating on Social Media Endorsement: The Moderating Role of Rating Dispersion and Discount Threshold” written by Xitong Li (2018)

Facebook launched the “Like” button in February 2009. Since then, more and more social media platforms, such as Twitter, LinkedIn and Instagram, started with introducing this service for their users. This liking function can be of great value for companies using these platforms for advertising. According to a study of Li and Wu (2013), one additional Facebook Like on a sponsor ad averagely will increase the company’s revenue by 215 dollars. It is therefore very interesting for companies to investigate in the motivating factors, that cause people to like and endorse a product since it can be an important extra source of revenue. How to encourage more users to involve in a product endorsement has therefore become increasingly essential to every company in terms of strategic marketing.

Why do people endorse products?

When a user clicks the “Like” button for a sponsored product, the product will automatically be shared to his or her Facebook friends. So the main reason for people to endorse a product is to inform their friends about a good deal. Users are willing to share and endorse a product to friends if they think it is a recommendable product or they want to show their interesting for this product publicly. For some users, social media endorsement is an uneconomical bargain since they should put their self-image at risk and may not get any monetary compensation. For instance, the self-image risk arises when they endorse a product with low quality. It is therefore important for people to make sure that the deal or product they are promoting to their friends is of high quality. A method often used to get knowledge on the quality is the average rating. The research therefore investigates how online reviews about restaurants affect social media endorsement of deal vouchers sold by the restaurants.   

Research Questions

While the average rating had been studied previously, how features of averaging rating will be the cause of social media endorsement were still unclear. Li (2017) attempted to start from the rating dispersion and discount threshold to investigate how these two features affect social media endorsement. To be specific, the author hopes the paper enables to answer the following two questions,

(1) Does a higher average of review ratings about the restaurants increase social media endorsement (Facebook Likes) of deal vouchers?

(2) Do rating dispersion moderate the effect of average rating on social media endorsement?

Previous studies show two possible motivations to drive consumers’ sharing on social media endorsement, which are increasing social capital (Lin et al, 2001) and enhancing self-image (Akerlof and Kranton, 2000). A higher average rating can signal to customers that the product gain recognition from the mainstream market and customers are more willing to endorse it to their friends. However, what a large dispersion of review rating of a product means to customers can have two opposite conjectures. On the one side, a large dispersion of review rating may send a signal to customers that the product has high uncertainty on its quality (Feldman and Lynch, 1988).  On the other side, a large dispersion of review rating may imply the product is unique and niche that is more attractive to customers with well-matched preference (Clemons et al 2006, Sun 2012).

Research design

The author chose the daily-deal businesses as the research setting and the restaurant industry as the object of research. Data of restaurant deals were collected from two sources, a data set provided by Byers et al. (2012) that consists of a nationwide sample of deals across 19 major cities of the United States, and a commercial daily-deal aggregator. To exclude restaurants that may not exist or too small, the author also checked whether the profile of a restaurant can be found on Yelp. Com or not. Finally, a cross-sectional data set that includes 2,545 restaurant deals and 129,129 individual review ratings has been generated. The author regards Facebook likes endorsed for a product deal as the dependent variable and review ratings on Yelp.com as the independent variable of this paper.

Findings

The main findings of this paper are:

•    The average rating increases consumers’ endorsements via Facebook for restaurants with enough reviews.

•    The effect of average rating on social media endorsement is greater for restaurants with more dispersed review ratings.

The first finding thus confirms the expected behavior of consumers which is that a higher review rating is associated with a perceived higher quality. This makes people more willing to endorse the product, since their risk of sacrificing their self-image or their social capital is lower. The second finding is quite surprising, since it indicates that people value more dispersion in a rating over a pure opinion.

Strengths and weaknesses

One of the strengths of the paper is that it takes place in a real life setting and uses real life data. Additionally. the researcher ensures a causal relationship between the dependent and independent variable by using a regression discontinuity (RD) design. Another strength is that, it gives interesting insights on a topic where existing views exist, which can be helpful for firms using social media endorsements. Weaknesses of the paper are that it only focuss on one specific business area, making it harder to generalize the findings to other fields. Next to that the research only uses likes as endorsement measure, however in the current social media era, there are other ways to endorse such as sharing or commenting which are not included.

Managerial implications and research implications

The research generates some interesting insights on the effect of the review rating. It can be valuable to know for company to know what impact their rating has on their social media advertisements, since these advertisements can generate large amounts of additional revenue. It is therefore of great importance for companies to make sure that their average review rating is high. Secondly it generates especially important new insight for companies with niche products, that have a more dispersed rating. For these companies, it is more useful to make use of social media advertising, since they can benefit from the endorsement effect most. It can be insight full to do future research on the effect of review ratings in other business areas and to investigate what other factors can influence the social media endorsement of consumers to test if the research also stands for other services and products.

Reference

Akerlof GA, Kranton RE (2000) Economics and identity. Quart. J. Econom. 115(3):715–753.

Byers JW, Mitzenmacher M, Zervas G (2012) Daily deals: Prediction, social diffusion, and reputational ramifications. Proc. Fifth ACM Internat. Conf. Web Search Data Mining (WSDM’12) (ACM, New York), 543–552.

Clemons EK, Gao GG, Hitt LM (2006) When online reviews meet hyper differentiation: A study of the craft beer industry. J. Man-agement Inform. Systems 23(2):149–171.

Feldman JM, Lynch JG (1988) Self-generated validity and other effects of measurement on belief, attitude, intention, and behavior. J. Appl. Psych. 73(3):421–435.

Li X, Wu L (2013) Measuring effects of observational learning and social-network word-of-mouth (WOM) on the sales of daily–deal vouchers. Proc. 46th Hawaii Internat. Conf. System Sci. (HICSS), Maui, HI, 2908–2917.

Lin N, Cook KS, Burt RS (2001) Social Capital: Theory and Research (Transaction Publishers, New Brunswick, NJ).

Sun M (2012) How does the variance of product ratings matter? Management Sci. 58(4):696–707.

How will the future of flagship stores look like? An inspiration from Nike House of Innovation


You’ve probably heard “retail apocalypse”. Brick-and-mortar retail is in trouble, even those retail giants are closing hundreds of stores every year. It cannot be denied that the digital revolution has changed the retail industry sharply and this change will still going on. As Michael Forhez who is Oracle senior director of retail and consumer goods said, “I can either shop on my own couch or I can shop at the retailer’s shelf—and I’m going to need a powerful reason to get off my couch”. That is the biggest challenge ahead of the entire retail industry (Currey, 2019).  

Source: Euromonitor

So, how to survive in the e-commerce era? How should the future of flagship stores look like? Nike and Ministry of Supply could probably give some inspirations. 

Nike House of Innovation

Nike House of Innovation sits in Soho shopping corridor of New York City, is a six-floor flagship store includes:

  • a mini basketball court; 
  • a treadmill in front of screens simulating different outdoor runs; 
  • a small, enclosed soccer area; 
  • a customization shoe bar where shoppers can personalize a pair of Nike Air Force 1s;
  • dedicated coaches on staff who can put customers through drills to test out sneakers (Bain, 2017).

The first floor is an area where you can customize your own shoes by choosing a sneaker style and/or changing your shoes’ laces. With an appointment, a more comprehensive personalization of the shoes is available. Furthermore, to match the customized shoes, the first floor also equipped with well-trained designers that can help you design the customized clothing if you request. 

The mini basketball court and the soccer area are covered with cameras that enable to capture motion from 360 degrees. Moreover, in order to recommend the most suitable running shoes, cameras are installed next to the treadmill to record and analyze the customer’s gait during running. It also allows customers to access the footage and share on their social media by logging into their online Nike account. 

The Nike app is the link between offline and online shopping. For fully enjoying the benefit of in-store services, you need to download the Nike app first to your phone. Through the app, 

  • you are able to ask the store staff to add more items to the fitting room online and you will receive a notification once items are ready. 
  • you are able to purchase the items online without waiting in the line at the counter. Kiosks also sit on each floor where you can drop off hangers and pick up a bag.
  • if you are a member of Nike’s loyalty program NikePlus, you are able to reserve and pick up items from the in-store locker by your phone. Moreover, the store allows you to customize your shoes and clothing online and pick up items from the in-store locker (Bain, 2016).

Ministry of Supply

Some companies are seeking for other ways to attract customers visit their flagship store. For instance, Ministry of Supply, it installed a 3D knitting machine at its flagship store in Boston City. While some companies have used it in factories, it is the first time that the 3D knitting machine installed in a flagship store. On the iPads, you can see how products could be personalized. So far, customers enable to customize the shape, the colour and decorations of a sweater. Then, the 3D machine will start to make it. After a 90-minute wait, a customized sweater will be ready for you (Ministry of Supply, n.d.).

The Omnichannel business model and the role of new flagship stores

According to four business models as above, in order to achieve the sustained profitability in the digital era, it is a trend for business leaders of the retail industry to shift their traditional brick-and-mortar business model to the omnichannel business model (Weill & Woerner, 2015). Omnichannel businesses provide customers access to their products across multiple channels, including physical channels, like shopping in a brick-and-mortar store, and digital channels, like shopping online from either a laptop or mobile devices. 

The core of omnichannel businesses is achieving a seamless shopping experience, which requires the company to possess the complete knowledge of customers under the value chain business design. Therefore, there is a strong claim to “owning” the customer relationship, where is also the challenge comes from. For omnichannel businesses, challenges are from two aspects. On the one hand, the challenge is how to attract more target or potential customers. On the other hand, the challenge is to seek more and more knowledge of the existing end customers and their goals to reduce the likelihood of customer churn.

For omnichannel businesses, personalization and customization are the keys. Nike house of innovation, a 6 floors brick-and-mortar store in Fifth Avenue is a costly investment with a high risk of failure since the e-commerce sales are growing so rapidly. But the most forward-looking companies, like Nike, they realise that physical stores are still essential for their brands, once physical stores can provide more personalized and customized services that e-commerce cannot or not yet. 

These new high-tech and high-concept flagship stores, unlike the traditional physical stores, they emphasize more on enhancing one-to-one connections with customers and customizing products by using up-to-date technologies. Retailers and customers no longer just a simple sale and purchase relationship, these new flagship stores turn the retail into an experience that provides an attractive reason for customers to visit their stores. In other words, they as a supplement to enrich the customer experience of shopping and as a bridge to blur the boundaries between online and offline shopping. Are you willing to leave your couch and gain a wonderful customer experience in a new high-tech and high-concept flagship store?

Reference

Bain, M. (2017). A fantastical new world of high-tech, high-concept stores is here. [online] Available at: https://qz.com/956745/retail-experiments-from-farfetch-nike-and-amazon-offer-visions-of-the-store-of-the-future/[Accessed 23 February 2019].

Bain, M. (2016).Nike’s new store in New York is like Legoland for people who love sports. [online] Availableat: https://qz.com/836671/nikes-new-store-in-new-york-has-a-basketball-court-where-you-can-test-drive-their-shoes/[Accessed 23 February 2019].

Currey, L. (2019). Advanced Technology Key to These Retailers’ Success, Survival. [online] Available at: https://www.forbes.com/sites/oracle/2019/02/22/advanced-technology-key-to-these-retailers-success-survival/#315f2d506ec1[Accessed 23 February 2019].

Minister of Supply (n.d.) Introducing Our 3D Print-Knit Shop. . [online] Available at: https://ministryofsupply.com/blogs/tested/introducing-our-3d-print-knit-shop[Accessed 23 February 2019].

Weill, P., & Woerner, S. L. (2015). Thriving in an increasingly digital ecosystem. MIT Sloan Management Review, 56(4), 27.