Star Power: Study Calculates the Dollar Value of Online Reviews
(Reuters)
Corporate messaging matters, but word of mouth rules.
We don’t trust brands. We trust people. It’s always been this way. And yet the Internet has changed the way we find and respond to other people’s opinions about the products they buy.
Word of mouth has become a business of its own. Brand-consumer interactions play out publicly, and reviews are everywhere. We’re not just recommending restaurants anymore; we’re advising one another on which city bus is the cleanest and which dog park has the least poop in it.
We know that online reviews matter because people use them to make decisions. Businesses routinely ask customers to “like” them on Facebook, or leave positive feedback on sites like Yelp. And, obviously, blistering reviews are ubiquitous. (Ask me about that time a former employer put me up at Hotel Pennsylvania when I first moved to New York.)
But how exactly does all of this chatter affect the bottom line for the business being praised or picked apart?
A new study by social analytics firm ShareThis and the Paley Center for Media quantified exactly how much more people were willing to pay for products — iPads, cars, various ingredients for recipes, and so on — based on reviews they encountered in person and online.
“Recommendations have more of an impact than brand or price,” ShareThis CEO Kurt Abrahamson told me. “We found that highly positive online shares can generate an almost 10 percent increase in purchase intent, and negative reviews can also have a correspondingly negative impact, [reducing purchase intent by] 11 percent.”
Researchers surveyed about 6,000 people to measure how different kinds of reviews — recommendations from strangers versus friends, online versus in person, and so on — translated into willingness to pay more or less for specific products.
Someone buying an iPad, for instance, would pay $22.26 more based on a positive “online share” by a stranger and $27.42 more based on a positive online share from a close friend or family member. Online shares, in this case, refer to activities like Facebook shares, positive tweets, and reddit posts.
When considering electronics purchases, those surveyed still tended to put the most weight on the opinion of professionals. Both print and online reviews of products had the power to move up people’s price points by $31.13.
Here’s how much more people were willing to pay for a tablet based on where they saw a positive review, with “consumer reviews” referring to posts on sites like Yelps and “ratings” referring to write-ups that accompany five-star rankings on sites like Amazon:
(ShareThis)
Bad reviews drove down prices even more than positive reviews pushed up what people were willing to pay. Seeing a stranger lash out online against the iPad made people want to pay $32.30 less for it.
Curiously, unhappy friends and family had a slightly less negative impact on people’s iPad price points ($31.70). In other words, the positive opinions of close friends and family members and the negative opinions of strangers mattered most to people.
Similarly, in-person reviews carried more weight when they were positive and online reviews carried more weight when they were negative.
Here’s how that breaks down: People were willing to pay $3.79 more for an iPad based on a positive review from an in-person acquaintance compared with a positive review from an acquaintance online. But people wanted to pay 40 cents less for that iPad based on a negative online share by an acquaintance versus a negative in-person conversation with an acquaintance.
Another way to look at this dynamic: Positive reviews are more positive in person and negative reviews are more negative online. That feels intuitive, if a bit optimistic. We trust our friends’ good taste but tend to seek second-opinions when someone is miffed about something.
The valuation differences between in-person and online reviews aren’t actually big enough to matter in a meaningful way, at least not economically, researchers say. What struck them most was the power that strangers and friends have to influence people’s buying decisions. This tier of influence once rested solely with professional reviewers and corporations themselves, but it has become democratized in a way that is fundamentally changing how we buy.
“Eight years ago, none of this was really part of the conversation,” Abrahamson said. “Sure you’d love to have a good consumer report review, but positive online commentary was not part of it. This shows how important this has become in the economy. Recommendations can have more of an impact than brand or price. They can be more important than what your brand is and the price you’re charging.”
If that isn’t astounding, it’s because we’re already pretty well used to this new reality. It’s the platforms that have changed, not our behaviors. Word of mouth has been a fundamental part of how humans have communicated for centuries.
For traditional gatekeepers — brands, professional reviewers, advertisers — this power shift can seem disorienting. How do you control the message when you’re no longer the only one crafting it?
The short answer: You don’t.
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