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How Does the Variance of Product Ratings Matter?

Author

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  • Monic Sun

    () (Graduate School of Business, Stanford University, Stanford, California 94305; and Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

This paper examines the informational role of product ratings. We build a theoretical model in which ratings can help consumers figure out how much they would enjoy the product. In our model, a high average rating indicates a high product quality, whereas a high variance of ratings is associated with a niche product, one that some consumers love and others hate. Based on its informational role, a higher variance would correspond to a higher subsequent demand if and only if the average rating is low. We find empirical evidence that is consistent with the theoretical predictions with book data from Amazon.com and BN.com. A higher standard deviation of ratings on Amazon improves a book's relative sales rank when the average rating is lower than 4.1 stars, which is true for 35% of all the books in our sample. This paper was accepted by Pradeep Chintagunta, marketing.

Suggested Citation

  • Monic Sun, 2012. "How Does the Variance of Product Ratings Matter?," Management Science, INFORMS, vol. 58(4), pages 696-707, April.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:4:p:696-707
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1458
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    References listed on IDEAS

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    14. Monic Sun & Feng Zhu, 2011. "Ad Revenue and Content Commercialization: Evidence from Blogs," Working Papers 11-32, NET Institute.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dobrescu, Loretti I. & Luca, Michael & Motta, Alberto, 2013. "What makes a critic tick? Connected authors and the determinants of book reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 85-103.
    2. Zegners, Dainis, 2017. "Building an Online Reputation with Free Content: Evidence from the E-book Market," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168293, Verein für Socialpolitik / German Economic Association.
    3. Susan F. Lu, 2016. "The Role of Donations in Quality Disclosure: Evidence from Nonprofit Nursing Homes Full Access," American Journal of Health Economics, MIT Press, vol. 2(4), pages 431-462, Fall.
    4. Schneider, Matthew J. & Gupta, Sachin, 2016. "Forecasting sales of new and existing products using consumer reviews: A random projections approach," International Journal of Forecasting, Elsevier, vol. 32(2), pages 243-256.
    5. Fernando Branco & Monic Sun & J. Miguel Villas-Boas, 2012. "Optimal Search for Product Information," Management Science, INFORMS, pages 2037-2056.
    6. Yusong Wang & David Bell, 2015. "Consumer store choice in Asian markets," Marketing Letters, Springer, vol. 26(3), pages 293-308, September.
    7. Sharapudinov, S. & Zezerova, V. & Storchevoy, M., 2017. "Determinants of Online Word-of-Mouth: Evidence from Durable Goods Market," Working Papers 8721, Graduate School of Management, St. Petersburg State University.
    8. Gal Oestreicher-Singer & Arun Sundararajan, 2012. "The Visible Hand? Demand Effects of Recommendation Networks in Electronic Markets," Management Science, INFORMS, pages 1963-1981.
    9. Runyu Chen & Wei Xu, 2017. "The determinants of online customer ratings: a combined domain ontology and topic text analytics approach," Electronic Commerce Research, Springer, vol. 17(1), pages 31-50, March.
    10. Marcel Lichters & Marko Sarstedt & Bodo Vogt, 2015. "On the practical relevance of the attraction effect: A cautionary note and guidelines for context effect experiments," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 5(1), pages 1-19, June.
    11. Christian Matt & Thomas Hess, 2016. "Product fit uncertainty and its effects on vendor choice: an experimental study," Electronic Markets, Springer;IIM University of St. Gallen, vol. 26(1), pages 83-93, February.
    12. Ronald L. Hess & Lawrence Ring, 2016. "The influence of the source and valence of word-of-mouth information on post-failure and post-recovery evaluations," Service Business, Springer;Pan-Pacific Business Association, vol. 10(2), pages 319-343, June.
    13. Wang, Jia-Hua & Guo, Qiang & Yang, Kai & Zhang, Yi-Lu & Han, Jingti & Liu, Jian-Guo, 2016. "Popularity and user diversity of online objects," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 461(C), pages 480-486.
    14. Mehrafshan, Nima & Goerke, Björn & Clement, Michel, 2016. "The Effect of Unexpected Chart Positions on the Firm Value of Music Labels. An Event Study of Album Success," EconStor Preprints 142161, ZBW - German National Library of Economics.
    15. Sungha Jang & Ashutosh Prasad & Brian Ratchford, 2012. "How consumers use product reviews in the purchase decision process," Marketing Letters, Springer, vol. 23(3), pages 825-838, September.
    16. repec:eee:proeco:v:191:y:2017:i:c:p:97-112 is not listed on IDEAS
    17. Yinbo Feng & Ming Hu, 2017. "Blockbuster or Niche? Competitive Strategy under Network Effects," Working Papers 17-13, NET Institute.
    18. Situmeang, Frederik B.I. & Leenders, Mark A.A.M. & Wijnberg, Nachoem M., 2014. "History matters: The impact of reviews and sales of earlier versions of a product on consumer and expert reviews of new editions," European Management Journal, Elsevier, vol. 32(1), pages 73-83.
    19. repec:eee:proeco:v:191:y:2017:i:c:p:178-193 is not listed on IDEAS
    20. Feng Zhu & Qihong Liu, 2014. "Competing with Complementors: An Empirical Look at Amazon.com," Harvard Business School Working Papers 15-044, Harvard Business School, revised Feb 2016.
    21. Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    22. repec:spr:amsrev:v:5:y:2015:i:1:d:10.1007_s13162-015-0066-8 is not listed on IDEAS
    23. Yabing Jiang & Hong Guo, 2012. "Design of Consumer Review Systems and Product Pricing," Working Papers 12-10, NET Institute.
    24. Zhang, Tao & Li, Gang & Cheng, T.C.E. & Lai, Kin Keung, 2017. "Welfare economics of review information: Implications for the online selling platform owner," International Journal of Production Economics, Elsevier, vol. 184(C), pages 69-79.

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