Pump up the Volume? Examining The Relationship Between Number of Online Reviews and Sales: Is More Necessarily Better?

We study the relationship between volume of online product reviews and sales. We find that volume has a positive significant effect on sales of products whose valence (average rating) is perc eived positively by consumers, while volume has a negative significant effect on sales of products whose valence is perceived negatively. Thus, p ooling all products together in one regression model may not correctly capture the relationship between volume and sales, as the two opposing effects might cancel each other. In addition , we show that online reviews have a cross effect on sales of competing products: t he demand for a product increases with its perceived quality, but decreases with the perceived qua lity of competing products. Finally, we show that consumers substitute the use of volume and valence when evaluating online review data: if the valence metric does not provide sufficient information to differentiate competing products, consumers would use the volume metric.

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