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The Effect of Word of Mouth on Sales: Online Book Reviews

  • Dina Mayzlin

    ()

    (Yale University, School of Management)

  • Judith A. Chevalier

    ()

    (Yale University, School of Management)

The creation of online consumer communities to provide product reviews and advice has been touted as an important, albeit somewhat expensive component of Internet retail strategies. In this paper, we characterize reviewer behavior at two popular Internet sites and examine the effect of consumer reviews on firms' sales. We use publicly available data from the two leading online booksellers, Amazon.com and BarnesandNoble.com, to construct measures of each firm's sales of individual books. We also gather extensive consumer review data at the two sites. First, we characterize the reviewer behavior on the two sites such as the distribution of the number of ratings and the valence and length of ratings, as well as ratings across different subject categories. Second, we measure the effect of individual reviews on the relative shares of books across the two sites. We argue that our methodology of comparing the sales and reviews of a given book across Internet retailers allows us to improve on the existing literature by better capturing a causal relationship between word of mouth (reviews) and sales since we are able to difference out factors that affect the sales and word of mouth of both retailers, such as the book's quality. We examine the incremental sales effects of having reviews for a particular book versus not having reviews and also the differential sales effects of positive and negative reviews. Our large database of books also allows us to control for other important confounding factors such as differences across the sites in prices and shipping times.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm413.

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Date of creation: 12 Aug 2003
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Handle: RePEc:ysm:somwrk:ysm413
Contact details of provider: Web page: http://icf.som.yale.edu/

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  1. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Working Papers 8271, National Bureau of Economic Research, Inc.
  2. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," NBER Working Papers 9085, National Bureau of Economic Research, Inc.
  3. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
  4. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
  5. Ellison, Glenn & Fudenberg, Drew, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 93-125, February.
  6. Paul Resnick & Christopher Avery & Richard Zeckhauser, 1999. "The Market for Evaluations," American Economic Review, American Economic Association, vol. 89(3), pages 564-584, June.
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