The impact of online product ratings on consumer behavior

Abstract

Consumers all over the world spend billions of Dollars on online shopping and media consumption every year. To make the right purchase decisions they increasingly rely on the digitized, aggregated opinion of others. Previous research analyzed how ratings and reviews influence product sales, and how they are influenced by previous ratings. Using data from a randomized experiment that results from a collaboration with a large Video on Demand platform, we examine the effect of online ratings on consumer behavior. In particular, we look at how consumers’ willingness to pay and subjective ratings are influenced by contrasting a decision environment where ratings exist against an environment where ratings are omitted. The results show that both dimensions of consumer behavior are significantly influenced. In the presence of high ratings, consumers, on average, adjust their WTP and subjective ratings positively. In the presence of low ratings, consumers, on average, only adjust their ratings downwards. Further, we give an estimate about the economic value of ratings in online decision environments. In our sample, showing ratings is associated with a 7.7 % increase in likely sales as ratings nudge household’s WTP over the price demanded. Our results question the reliability of online ratings as unbiased indicators of product quality and provide valuable insights to improve consumer and managerial decision making.

Date of Award	8 Jul 2019
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Miguel Godinho de Matos (Supervisor)