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How Online ReviewsInfluence Sales\ Evidence of the Power of Online Reviews to Shape Customer BehaviorData-Driven Insights on How Retailers Can Maximize the Value ofTheir Engagement With Consumers Through Online Reviews
\ Executive SummaryInsights into How Online Reviews AffectPurchase DecisionsQUESTIONS WE ADDRESSWith nearly 95% of shoppers reading onlinereviews before making a purchase, reviewshave transformed the way consumers makepurchase decisions.* But reviews are morethan just a way for shoppers to gatherinformation. Reviews are a powerful form ofconsumer engagement.In this research, we set out to answertwo main questions:Northwestern University’s Spiegel ResearchCenter has been at the forefront of answeringquestions about how consumers engage withbrands and how that engagement shapescustomer value since 2011.We have found that online reviews havea significant and quantifiable impact onpurchase decisions – but the degree of thatimpact depends on a number of factors,such as star ratings, the nature of the reviewcontent, the number of reviews, the priceof the item, and the source of the review.These findings have powerful implicationsfor retailers and their suppliers as theythink about how to collect, manage, andpromote online reviews of their productsand services.As part of Spiegel’s ongoing, multi-facetedexploration of consumer engagement,we have spearheaded research into thefinancial impact of consumer engagementvia online reviews.*PowerReviews Internal Data2 Do online reviews affect sales? If so, in what ways, by how much,and under what circumstances?In this report, we examine Spiegel’sgroundbreaking research and providerecommendations for how retailers canuse online reviews to drive increasedcustomer value.\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu What is the upside impact of online reviewson sales? What’s the downside impact? A re higher ratings always better predictorsof increases in sales? D oes familiarity with the product categoryalter the influence of reviews? I s there an optimal number of reviews?If so, how many? S hould brands prompt purchasersto submit reviews? D o reviews from verified buyers havegreater impact on sales than those fromanonymous sources?
\ Executive SummaryAbout the ResearchThe Spiegel research team partnered with PowerReviews to analyzemillions of customer experiences from two online retailers featuringprimarily lower-priced product categories and a third online retailerof high-priced gifts. We looked at how customers’ exposure to andinteraction with online reviews affected their purchase behavior forup to a year. L ower-priced consumer products: Spiegel analyzed ratings andreviews data in the consumer packaged goods industry from twoonline retailers; the research covered 22 product categories witha total of 111,460 SKUs. H igh-end gift retailer: Spiegel analyzed approximately 15.5million page views for 1,800 unique products from 7.8 millionusers over the course of one year, tracking the number of pageviews and sales as each product accumulated reviews. P rompted vs. unprompted reviews: Spiegel analyzed 57,000reviews from anonymous consumers and 65,000 reviews fromverified buyers for about 13,500 unique products in a numberof categories, including health and beauty, electronics, andhome and garden.3\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduABOUT POWER REVIEWSPowerReviews works with global brands and retailersto collect and display customer ratings. PowerReviewspartners with more than 1,000 global brands andretailers to increase conversion and improve productsand the customer experience with ratings and reviewsand Q&A software.
\ Executive SummaryWhat we found:This research found that not only are reviews extremely valuable in influencing purchase decisions,but a number of circumstances factor into when and how reviews shape customer value.How star ratings, number of reviews, and price influence purchase behavior!Online ReviewsMatter — A Lot . . Especially forMore Expensive. and “Risker” ItemsHow the source of the reviewer mattersVerified BuyersGiveHigher Ratings4Anonymous ReviewsAre Shapedby Selection Bias\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduVerified BuyersAre Perceivedas More CrediblePerfect RatingsRaise QuestionsMore is NotAlways Better
\ Impact on Conversion BehaviorHow Ratings, Number of Reviews,and Price Influence Purchaseand Conversion BehaviorSpiegel’s analysis of ratings and review data from multiplee-commerce sites found that online reviews have the powerto dramatically influence purchase decisions. But the degreeof this influence depends on many factors, including: Price of the product Degree of uncertainty or risk involved in the purchase Average star rating Presence of negative reviews Number of reviews5\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduWHAT WE FOUND:1. D isplaying reviews can increaseconversion by 270%2. R eviews impact sales more forhigher-priced items 3. and for higher-consideration items4. 5 stars is “too good to be true”5. Initial reviews have the greatest impact
\ Variable: Presence of Reviews1. Displaying Reviews CanIncrease Conversion by 270%Based on data from the high-end gift retailer, we foundthat as products begin displaying reviews, conversion ratesescalate rapidly. The purchase likelihood for a product withfive reviews is 270% greater than the purchase likelihoodof a product with no reviews.Conversion IncreaseIt may seem intuitive that the availability of reviews willmake a consumer more likely to purchase a product. Butthe magnitude of that impact may surprise many people.THE FINANCIAL IMPACT OFDISPLAYING REVIEWS051015Number of ReviewsOur research found that as products begin displaying reviews,conversion rates escalate. Having five reviews causes purchaselikelihood to increase by a factor of nearly 4x.Askalidis, Y., and Malthouse, E. C. (2016). “The Value of Online Customer Reviews.”RecSys 2016 - Proceedings of the 10th ACM Conference on Recommender Systems,155-158. Association for Computing Machinery, Inc.6\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu20
\ Variables: Presence of Reviews and Price2. Reviews Have a Greater ConversionImpact for Higher-Priced ProductsTo better understand the conversion impact of reviews in various circumstances, we looked at the impact of displaying reviews on higher-pricedversus lower-priced products. We found that reviews had a greater impacton purchase likelihood for higher-priced items than cheaper ones.The data from the high-end gift retailer showed that this was true whencomparing high-priced vs. low-priced categories. And the research fromthe lower-priced consumer products retailer showed that this was alsotrue when looking at high-priced vs. low-priced options within categories(e.g., regular cereal vs. organic cereal).When the price is higher, there is more risk involved in the consumer’sdecision. Having more information via reviews helps mitigate that risk.HIGHER-PRICED PRODUCTS, HIGHERCONVERSION IMPACTCONVERSION INCREASE FROM THEINCLUSION OF REVIEWS400%300%200%100%0% Low-Priced Category High-Priced CategoryBased on data from the gift retailer, when reviewswere displayed for a lower-priced product, the. However, forconversion rate increaseda higher-priced product, the conversion rate.increased190%380%Askalidis, Y. and Malthouse, E.C. “The Value of Online Customer Reviews.” RecSys ‘16 Proceedings ofthe 10th ACM Conference on Recommender Systems, 2016.Malthouse, E.C., Maslowska, E., and Viswanathan, V. “Do Customer Reviews Drive Purchase Decisions?The Moderating Roles of Review Exposure and Price.” Decision Support Systems, 2017.7\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu
\ Variables: Ratings, Price, and Risk3. Reviews Have a GreaterConversion Impact ForHigher-Consideration ItemsOur research showed that reviews have a greater impact onpurchase likelihood for high-consideration products than forlow-consideration products.Price is one of the primary factors that determines how“risky” a purchase is, but it is not the only factor. Otherfactors that might cause a consumer to spend moreenergy evaluating a purchase decision—and hence relymore heavily on reviews—include: How much the product affects health and safety ow much the product reflects the consumer’sHpersonal identity 8 hether the product is a recurring or habitualWpurchase for the consumerWhether it is a recently introduced product or brand\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduTHE ENHANCED ROLE OF REVIEWS FORHIGHER-CONSIDERATION PRODUCTS:Cheap SlopeExpensive SlopeBaby FoodMost Likelyto PurchaseLeast Likelyto Purchase1234545Average Star RatingWeight LossMost Likelyto PurchaseLeast Likelyto Purchase123Average Star RatingStar ratings have a stronger influence on purchase likelihoodfor expensive items than cheaper items in the same category.For both baby food and weight loss products, the slope of thepurchase likelihood line was significantly steeper for expensiveoptions than for cheaper options.
\ Variables: Average Star Ratings4. Five Stars is“Too Good to be True”FINDING THE SWEET SPOTThe optimal star rating varied across product categories. But what is mostinteresting to note is that in no category was the optimal rating 5.0.Star Ratings’ Impact on Purchase ProbabilityLight Bulbs0.6More stars equals more sales, right? It seems fairly intuitivethat higher ratings would lead to higher sales. Our researchfound that this is true—but only up to a point.Across product categories, we found that purchase likelihoodtypically peaks at ratings in the 4.0 - 4.7 range, and thenbegins to decrease as ratings approach 5.0. Put differently,products with an average star rating in the 4.7 - 5.0 range areless likely to be purchased than those in the 4.2 - 4.7 range.This suggests that shoppers see ratings at the far end of thespectrum as “too good to be true.”Natural Hair Care Products00.4-10.2-20.0-3-0.212345123Star RatingWomen’s Athletic ShoesHerbal Vitamins21.000.5-20.0-1.01234512Star Rating3Star RatingHigh-end Gifts0.20.0-0.29\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu5-0.5-4Maslowska, E., Malthouse, E.C., and Bernritter, S. (2017), “Too Good to be True:The Role of Online Reviews’ Features in Probability to Buy.” International Journal ofAdvertising, 36(1) 142-163.4Star Rating-0.40123Star Rating4545
\ Variable: Presence of Negative ReviewsNegative Reviews Establish CredibilityPrevious PowerReviews research found that 82% of shoppersspecifically seek out negative reviews. This is consistent withour theory that near-perfect ratings undermine the credibilityof the review.1 Readers are skeptical of reviews that are toopositive and, in many cases, a negative online review is seenas more credible.Additional research by social commerce specialist Revooindicates that consumers spend four times as long on asite when they interact with negative reviews, with a 67%increase in conversion rate.212PowerReviews (2014): The Proven Power of ReviewsRevooBlog, “Bad Reviews Are Good For Business”Maslowska, E., Malthouse, E.C., and Bernritter, S. (2017), “Too Good to be True:The Role of Online Reviews’ Features in Probability to Buy, International Journal ofAdvertising.” 36(1) 142-163.10\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduWHY NEGATIVE REVIEWS MATTER: S hoppers are skeptical ofoverly positive reviews M ost shoppers actively seekout negative reviews T he presence of negative reviews bringsauthenticity to a site’s review content
\ Variable: Number of Reviews5. Initial Reviews Havethe Greatest ImpactBased on our research of the gift retailer’s website, we foundthat nearly all of the increase in purchase likelihood occurswithin the first 10 reviews, and the first five reviews drive thebulk of this increase.Conversion IncreaseIt’s easy to assume that having more and more reviews willcontinue to help drive sales. Our research found that morereviews help, but only to a point — and that point is muchlower than many might assume.DIMINISHING MARGINAL RETURNSLow PriceHigh Price05101520Number of ReviewsFor both low- and high-priced products, the marginal value of additional reviews rapidly decreases. But the point at which the impactplateaus varies depending on price point. Higher-priced items needat least five reviews to see the greatest conversion impact, whereaslower-priced items only need 2-4 reviews to see a significant impact.Askalidis, Y. and Malthouse, E. C. (2016). “The Value of Online CustomerReviews.” RecSys 2016 - Proceedings of the 10 th ACM Conference onRecommender Systems, 155-158. Association for Computing Machinery, Inc.11\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu
\ Putting Conversion Insights to Work5What This Means for BrandsFOCUS ON FIRST FIVEThe first five reviews for a product havethe biggest conversion impact. Focus oncollecting a baseline number of reviews,especially for higher-priced products.EMBRACE NEGATIVE REVIEWSThe power of online reviews to influencesales means that retailers have powerfulincentives to develop effective strategiesfor collecting, displaying, and monitoringreviews on their websites. Reviews that areviewed as representative and credible canbe a significant competitive advantage.Allowing negative reviews on your site helps buildcredibility with shoppers. Rather than trying to eliminatenegative reviews, monitor them and respond to them.FOLLOW-UP BY EMAIL80%Prior research from PowerReviews shows that upto 80% of reviews originate from follow-up emailsurging shoppers to review their purchases.*PRODUCT SAMPLE NEW ITEMSIn addition to email prompts, product sampling can bean effective way to generate initial reviews, particularlyfor new products among first-time purchasers. STREAMLINE PLATFORMS*PowerReviews Internal Data12\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu ake the process of posting a review asMsimple as possible by allowing shoppers tosubmit reviews with just a few clicks. Also,make it easy for shoppers to read and postreviews across all devices and platforms.
\ Prompted vs. Unprompted ReviewsHow the Source of the ReviewsImpacts Ratings, Credibility, andPurchase LikelihoodWHAT WE FOUND:1. Verified buyers give higher ratingsAre all reviews created equal? To answer this question, we looked at data relatedto reviews submitted by the two primary types of reviewers: verified buyers(i.e., prompted reviews) and anonymous reviewers (i.e., unprompted reviews).In analyzing this data, we explored three key questions:1. Do star ratings vary depending on the source of the reviewer?2. If so, what causes the ratings to vary between the groups? oes one type of review have a greater impact on shoppers’3. Dpurchase behavior?Verified buyer (i.e., prompted reviewer): For this study, verified buyers areconsidered consumers who make a purchase online and receive a post-purchaseemail asking them to review their purchase.Anonymous reviewer (i.e., unprompted reviewer): Anonymous reviewers are thosewhose purchase cannot be confirmed through an online sales transaction linkedto a review prompt.13\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu2. S election bias and social influencebias shape how people write reviews3. Reviews from verified buyers areperceived as more credible and havea greater impact on sales
\ Prompted vs. Unprompted Reviews1. Reviews from Verified BuyersHave Higher RatingsAVERAGE STAR RATING:VERIFIED BUYERS VS. ANONYMOUS REVIEWERS70We found that reviews from verified buyers are substantiallymore positive than reviews written by anonymous sources.These findings are consistent with the theory that people whoare self-motivated to write a review have more extreme, andoften more negative reviews. We explore this selection bias inmore detail later in the report.Verified Buyer6050PercentageThe average star rating for reviews from verified buyers is4.34, compared to an average star rating of 3.89 for reviewswritten by anonymous reviewers. In addition, reviews fromverified buyers contain a higher percentage of 5-star ratings,while reviews from anonymous reviewers have a largerpercentage of 1-star ratings.Anonymous Consumer40302010012345RatingVerified buyers are more likely to give four- or five-star ratingsthan anonymous reviewers are. Conversely, anonymous buyersare significantly more likely to give one- and two-star reviews.Askalidis, Y., Kim, S.J., and Malthouse E.C. (2017), “Understanding andOvercoming Biases in Customer Reviews.” Decision Support Systems. 97(May 2017), 23-30.14\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu
\ Prompted vs. Unprompted Reviews2. Selection Bias and Social Influence BiasShape How People Write ReviewsThe finding that anonymous reviewers typically give lower ratings is consistent with our theory that “friction” causes selection bias when it comesto reviews. When responding to an email prompt, verified buyers typicallyonly have to make a few clicks to submit a review. Anonymous reviewers,on the other hand, must go to the review site and create an account beforethey can submit a review. Thus, we hypothesize that customers who arevery unhappy with their purchase are much more likely to go to the effortto post an unprompted review.We also found that ratings from anonymous reviewers tend to decline overtime while ratings from verified buyers remained steady, which suggestssome degree of social influence bias is at work. Verified buyers are askedto fill out a review via email and are taken to a page where they don’tsee any other reviews. Anonymous reviewers, on the other hand, havevisibility to average star ratings and others’ reviews. Thus, anonymousreviewers may be influenced by the product’s average star rating or thevolume or tone of review comments.Askalidis, Y., Kim, S.J., and Malthouse E.C. (2017), “Understanding and Overcoming Biases inCustomer Reviews.” Decision Support Systems. 97 (May 2017), 23-30.15\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduSELECTION BIAS:Shoppers who have had a negative experienceare more likely to make the effort of going to asite, creating an account, and posting a review.SOCIAL INFLUENCE BIAS:Verified buyers typically don’t see average starratings when posting their reviews. Anonymousreviewers, on the other hand, do have thisvisibility, which could influence their ratings.
\ Prompted vs. Unprompted Reviews3. Reviews from Verified BuyersAre Perceived as More Credible andHave a Greater Impact on SalesWe examined whether consumers evaluate reviews from verified buyers differentlythan reviews from anonymous reviewers. That is to say, do shoppers place moretrust in a review if it’s written by a verified buyer?We found that displaying reviews written by verified buyers – identified by a “verifiedbuyer badge” – has a positive impact on sales. This suggests that reviews written bythose with direct experience using a product are considered more credible and trustworthy. The verified buyer badge shows that the reviewer is a real consumer and notsomeone who was paid to write a review or someone who has an axe to grind againstthe company.Because verified buyers typically provide more positive reviews than anonymousreviewers, having more reviews from verified buyers provides the dual benefit ofhigher ratings and increased credibility.Kim, S.J., Malthouse, E.C., and Maslowska, E. “Understanding the Role of Different Review Features inPurchase Probability” Submitted to International Journal of Advertising, 2017.16\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduVALUE OF THE “VERIFIED BUYER BADGE”Verified Buyer15%Purchase likelihood increaseswhenconsumers are exposed to reviews writtenby a verified buyer vs. an anonymous review.
\ Prompted vs. Unprompted ReviewsENCOURAGE VERIFIED BUYERSImplement a post-purchase email plan to collectreviews from verified buyers. Retailers can expectto see average star ratings increase by promptingbuyers to submit reviews.What This Means for BrandsOPTIMIZE DEFAULT SETTINGSHaving more reviews from verified buyerscan help improve the value of the reviewsin multiple ways. When developing theironline review strategies, retailers shouldconsider the various benefits of promptingreviews from customers.Offer a “verified buyer only” default settingon your review platform so readers can viewonly those reviews.OFFER BUYER “BADGES”In addition to fostering a representative sampleof reviews, retailers can improve the perceivedcredibility of their sites by including “verifiedbuyer badges.”MITIGATE BIASRetailers can play an active role in mitigating selectionbias and social influence bias in the online reviewecosystem by incentivizing reviews from verified buyers.BE TRANSPARENT17Be transparent about incentives used to solicitreviews (e.g. entry into a sweepstakes) or considernon-prize incentives (e.g. stars or badges forfrequent reviewers).\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu
In ReviewData-Driven Strategies to Leverage the Power of Online ReviewsBased on our extensive research into how online reviews influence purchase decisions, we recommend that retailers followthese six principles when developing an online review strategy.Display reviewsand ratings on yourproduct websiteEmbrace negativereviewsPrioritize generatingreviews for productswith a low volumeof reviewsFurther prioritizegenerating reviewsfor higher-price andhigher-considerationproductsOvercome selectionbias to improve thevalue of reviewsIdentify reviewsfrom “verifiedbuyers”Displaying reviewscan increase salesby 270% on average.Retailers that choosenot to feature ratingsand reviews risk losingcustomers to a sitethat does. Hostingmobile-friendly sitesthat make it easy toview and post reviewswill help retailersdrive sales.Purchase likelihoodtypically peaks whenthe average star ratingis between 4.2 and4.5 stars and starts todrop as the star ratingapproaches a perfect5.0. While it mayseem counterintuitive,negative reviewscan have a positiveimpact because theyestablish credibilityand authenticity.The first five reviewshave the biggestimpact on purchasedecisions. Rather thantrying to generateadditional reviews forall products, retailersshould focus theirefforts on making sureall products have atleast a handfulof reviews.Reviews are moreimpactful for higherpriced and higherconsiderationproducts. There’s ahigher risk involvedwith purchasing anexpensive item, a newbrand, or a product thataffects personal safety.Retailers can helpconsumers overcomethis risk by providingadditional reviews forthese products.A larger pool ofreviewers is not alwaysmore representative,particularly if it includesa large number ofanonymous reviews.Retailers can maketheir reviews morerepresentative of thetotal universe of buyersby encouraging verifiedbuyers to post reviewsthrough post-purchaseemail prompts.Identifying purchaserswith “verified buyerbadges” enhances thecredibility of a reviewand improves the oddsof purchase by 15%.Retailers should betransparent in labelingverified buyers and anytactics used to solicittheir reviews.18\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu
Review the ResearchBranded Apps Research TeamThe research supporting this report was led by thefollowing members of the Spiegel Research Center:Tom CollingerExecutive Director and Associate ProfessorEdward MalthouseProfessor of Integrated Marketing CommunicationsEwa MaslowskaAssistant Professor and Research AssociateRebecca WangAssistant Professor and Research AssociateSu Jung KimAssistant Professor and Research AssociateYorgos AskalidisPhD Data Scientist19\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.eduPUBLISHED RESEARCH ON ONLINE REVIEWSThe results and insights from the Spiegel ResearchCenter’s research into how online reviews influencepurchase decisions have been published in thefollowing journals and textbooks:JOURNAL PUBLICATIONS*Full papers available upon requestAskalidis, Y., and Malthouse, E. C. (2016). “The Value of OnlineCustomer Reviews.” RecSys 2016 - Proceedings of the 10th ACMConference on Recommender Systems, 155-158. Association forComputing Machinery, Inc.Malthouse, E., Maslowska, E., and Viswanathan, V. “Do CustomerReviews Drive Purchase Decisions? The Moderating Roles ofReview Exposure and Price,” Decision Support Systems, 2017.Maslowska, E., Malthouse, E.C., and Bernritter, S. (2017), “TooGood to be True: The Role of Online Reviews’ Features in Probabilityto Buy, International Journal of Advertising.” 36(1) 142-163.Kim, S.J., Malthouse, E., and Maslowska, E. “Understandingthe Role of Different Review Features in Purchase Probability.”Submitted to International Journal of Advertising, 2017.Askalidis, Y., Kim, S.J., and Malthouse, E.C. (2017), “Understanding and Overcoming Biases in Customer Reviews.” DecisionSupport Systems. 97 (May 2017), 23-30.
More Insightsfrom the SpiegelResearch CenterAs the digital marketing communicationslandscape evolves, we will continue to lookfor innovative ways to measure the impactof engagement on consumer behavior.ConsumerEngagement EngineSocial MediaContestsOnline NegativeWord-of-MouthDo consumers who engagein social media contestsbuy more?Do negative posts in asocial media environmentimpact purchase behavior?How do the new waysthat consumers engagewith brands affectcustomer value?Loyalty ProgramsBranded App ROIMulti-PlatformEngagementDo instant rewards drivepurchase in a loyaltyprogram?What is the value ofcustomer engagement viabranded mobile apps?How does multi-channelengagement affect purchasebehavior?To dive deeper into Spiegel’s research intohow engagement via mobile apps and otherchannels influences purchase behaviorand customer value, we invite you to visitus online.LEARN MORE about the Spiegel ResearchCenter’s research-driven insights onmarketing communications by visiting:spiegel.medill.northwestern.edu20\ How Online Reviews Influence Sales \ spiegel.medill.northwestern.edu
\ Executive Summary Insights into How Online Reviews Affect Purchase Decisions With nearly 95% of shoppers reading online reviews before making a purchase, reviews have transformed the way consumers make purchase decisions.* But reviews are more than just a way for shoppers to gather informa
