Optimal Design of Consumer Review Systems

Consumer review systems have become an important marketing communication tool through which consumers share and learn product information. This paper aims to analyze the review system design as firms’ strategic decision to facilitate consumer sharing and learning about their products. We show that firms’ optimal pricing and review system design decisions critically depend on contextual characteristics including product quality, product popularity, and consumer misfit cost. Our results suggest that firms choose a low rating scale for niche products and a high rating scale for popular products. Different pricing strategies should be deployed during the initial sale period for different product types. For niche products, firms are advised to adopt lower-bound pricing for high-quality products to take advantage of the positive word-of-mouth. For popular products, firms are advised to adopt upper-bound pricing for high-quality products to enjoy the direct profit from the initial sale without damaging the product review outcomes.