The document summarizes a research study that examined how two types of social interactions - word-of-mouth learning (WOML) through online consumer reviews and observational learning (OL) through summary purchase statistics - influence consumer purchase behavior of digital cameras on Amazon.com. The research found that both WOML and OL positively impact sales, but the influence of OL decreases over the product lifetime as more information becomes available. The rating in consumer reviews matters less for highly-ranked products that see herd behavior, while detailed reviews dampen the effect of OL. The number of reviews serves as a key OL signal. The findings have implications for how sellers should approach attracting consumer reviews.

1. BSI Does Action Speaker Louder than Words in Social Interactions?
Marketing 2.0 Conference, Barcelona 2006

2. Join the conversation
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3. Does Action Speak Louder than Words in
Social Interactions?
— Online Consumer Review and Purchase Behavior
Yubo Chen & Jinhong Xie
University of Arizona University of Florida
2nd International WOM Marketing Conference
May 18-19, 2006, Barcelona, Spain
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

4. Agenda
Introduction
Research Issues
Research Design and Data
Results
Conclusions and Managerial Implications
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

5. Online Consumer Review
Online consumer product review: Increasing
Popularity
What is the function of online consumer review?
How does it differ from third-party review?
How consumer reviews influence purchase behavior
(product sales)?
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

6. Consumer vs. Third-party
Product Review
Consumer review: free sales assistants (Chen and
Xie 2004)
– provide matching information to consumers, particularly
novices
Third-party product review (e.g., CNET.com): focus
more on quality information (Chen and Xie 2005)
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

7. A Broader Perspective
— Social Interactions
Two Types of consumer social interactions (learning)
– Word-of-mouth Learning (WOML)
• Detailed product Information (e.g., online consumer reviews)
– Observational Learning (OL)
• Summary statistics of the actions of previous adopters (e.g.,
market share, sales, sales rank)
• A subset of previous adoption (e.g., imitate neighbors )
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

8. Research Issues
Observational
Learning (OL)
Consumer
Product Lifetime Purchase
(Product
Sales)
Word-of-mouth
Learning (WOML)
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

9. Research Design and Data
Research Setting: Digital Camera at Amazon.com
Social Interactions Data
– WOML: customer reviews
• Valence: average customer rating
• Information Volume: # of reviews, overall # of review words
• Credibility: # of reviews
– OL: summary stats of previous purchase
• Recommendation stats
• Sales rank
• # of reviews
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

10. Research Design and Data
Sales Data
– transformation from sales rank (Chevalier and Goolsbee 2003,
Chevalier and Mayzlin 2006)
Product Lifetime Data: CNET.com
– 120 models reviewed in CNET between 03/09 and 05/07
Other Control Variable : price, # of sellers
Data collected on three days in 09/05
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

11. Main Effect of WOML and OL
+
Recommendation Stats
+*
Sales Rank
+*
# of Reviews
Consumer
+ Purchase
Review Rating (Product
Sales)
+*
# of Overall Review Words
—*/+*/—*
Lifetime / # of Sellers / Lowest Price
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

12. Main Effect of WOML and OL
Both types of social interactions impacts
consumer purchase.
Consumer review content (information
volume) significantly increases purchase,
regardless the review rating and product rank/
recommendation
Matching Function of Consumer Review
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

13. Interaction between WOML and OL
— How OL Moderates the Impact of WOM Valence
Recommendation Stats
Sales Rank
—*
# of Reviews
—*
Consumer
+/— Purchase
Review Rating (Product
Sales)
# of Overall Review Words
Lifetime / # of Sellers / Lowest Price
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

14. How OL Moderates the Impact of WOM Valence
The impact of review rating depends on OL information.
Consumers more likely to ignore review rating for highly ranked/
recommended products
Herd Behavior/ Information Cascade (Banerjee 1992, Bikhchandani et. al 1992)
Ratings are more important for low ranked/ recommended items
How consumer review influences OL’s effect (on herd behavior)?
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

15. Interaction between WOML and OL
— How WOM Info Volume Moderates the Impact of OL
Recommendation Stats
Sales Rank
+*/— +*/—
—*
—* # of Reviews
Consumer
Purchase
# of Overall Review Word (Product
Sales)
Review Rating
Product Lifetime / # of Sellers / Lowest Price
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

16. How WOM Info Volume Moderates the Impact of OL
WOM Info Volume decreases the impact of
recommendation stats / sales rank.
# of Reviews is more used as the OL (action stats) by
consumers.
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

17. Moderating Effect of Product Lifetime
Recommendation Stats
—*
Sales Rank
—*
# of Reviews
+/—
Consumer
Product Lifetime Purchase
— (Product
Review Rating Sales)
+
# of Overall Review Words
# of Sellers / Lowest Price
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

18. Moderating Effect of Product Lifetime
The impact of OL is decreasing with the product
lifetime.
– Available product information increases along the product
life cycle, which decreases the impact of OL
Late consumers (novices) tend to focus less on
review rating.
– Consumer reviews provide matching information for
novices
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

19. Conclusions
Both types of social interactions impact consumer purchase.
Consumer review rating info is more likely to be ignored for highly ranked/
recommended products.
Consumer review content (info volume)
– increases purchase significantly, regardless the review ratings and
product OL status
– dampens the impacts of OL and shatters information cascade
# of consumer reviews mainly works as a OL statistics and signals
previous purchase situation.
The impact of OL is decreasing along the product life cycle.
Late consumers (novices) tend to focus less on review rating.
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

20. Managerial Implications
OL information can benefit mass market products but hurt
niche products.
Only providing overall consumer rating is NOT enough, and
might even hurt sellers (through limited # of reviews).
Attracting detailed review content (even mixed or negative) is
essential for sellers, particularly for niche products.
Implications might apply for offline WOM.
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?

21. Thank You!
Yubo Chen
Assistant Professor of Marketing
Eller College of Management
University of Arizona
Email: yubochen@eller.arizona.edu
http://www.eller.arizona.edu/~yubochen
Yubo Chen & Jinhong Xie: Does Action Speak Louder than Words in Social Interactions?