Promotional Marketing or Word-of-Mouth? Evidence from Online Restaurant Reviews

T value of promotional marketing and word-of-mouth (WOM) is well recognized, but few studies have compared the effects of these two types of information in online settings. This research examines the effect of marketing efforts and online WOM on product sales by measuring the effects of online coupons, sponsored keyword search, and online reviews. It aims to understand the relationship between firms’ promotional marketing and WOM in the context of a third party review platform. Using a three-year panel data set from one of the biggest restaurant review websites in China, the study finds that both online promotional marketing and reviews have a significant impact on product sales, which suggests promotional marketing on third party review platforms is still an effective marketing tool. This research further explores the interaction effects between WOM and promotional marketing when these two types of information coexist. The results demonstrate a substitute relationship between the WOM volume and coupon offerings, but a complementary relationship between WOM volume and keyword advertising.

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