October 19, 2006
Consumer Reviews May Lift E-Commerce Conversion
By Eric Goldman
For a while, Epinions got into the "syndication" business. We aggregated all of the consumer-provided reviews and made them available for licensing to e-tailers. The intuition was that consumer reviews would "lift" e-tailers' conversion to sale, increasing profits by more than the license fee.
At the time, our data supporting this theory was a little sketchy, but now 2 professors at Yale's Management School have tried to quantify this by looking at the relationships between consumer reviews and sales at Amazon.com and BarnesandNoble.com. Their findings:
the addition of new, favorable reviews at one site results in an increase in the sales of a book at that site relative to the other site. We find some evidence that an incremental negative review is more powerful in decreasing book sales than an incremental positive review is in increasing sales. Our results on the length of reviews suggest that consumers actually read and respond to written reviews, not merely the average star ranking summary statistic provided by the Web sites.
These results are not trouble-free. The paper explains how the "sales rank" data at both Amazon and BN is unreliable. It also discusses how Amazon culled user-written reviews to unknown effect. Finally, it shows that reviews are generally positive, with the mode being a 5 star ranking and the mean being 4+.
Ultimately, I think this implicitly raises the issues of review credibility. Consumer reviews generated by most e-commerce sites tend to be "love it' or "hate it" with comparatively few nuanced reviews. (The paper shows that the 1 and 5 star reviews are generally shorter than the 2-4 star reviews). There's the risk of fake/shill reviews (recall the 2004 NYT story; see also this article on fake merchant ratings). And then there is the overall concern about decreased credibility of anonymous reviews.
According to this paper, it doesn't matter. E-commerce sites want to generate consumer reviews because it's almost guaranteed that positive reviews will be provided (either by shills or by the "love it" crowd), and these positive reviews will increase conversion to sale. So the consumer review system, seemingly exemplifying consumer empowerment, may just be a really clever artifice for consumer manipulation.
I can't say that Epinions avoids these pitfalls entirely, but the Epinions review-collection process is much more rigorous than a typical e-commerce website's collection system, and that rigor tends to enhance the production of credible reviews. In contrast, personally I would not rely on an Amazon.com (and certainly never on a BN.com) review to make a purchasing decision except as a starting point for more careful research from more credible sources.
Finally, the paper has a few other interesting tidbits, mostly explaining how BN.com is inferior to Amazon.com:
* prices at BN.com were consistently higher than at Amazon.
* Amazon.com had much better review coverage (87% to 46% of products)
* Amazon.com's reviews were longer than those at BN.com
Posted by Eric at October 19, 2006 11:23 AM | E-Commerce
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