Abstract
Although there is abundant evidence that online consumer ratings have significant impacts on firms’ pricing strategies, it is unclear how such impacts are influenced by the degree of product customization. This paper sets up a two-period dynamic model to analyze a firm’s pricing strategies and the changes in its profitability when it sells products with different customization degrees (i.e., niche, neutral or mainstream). Consumers are uninformed of the product value. However, the first-period consumers generate online consumer ratings after their consumptions, and such ratings enable the second-period consumers to better understand the product value and thus to improve their purchasing decisions. Our results show that, in anticipation of the impacts of online consumer reviews, the firm should adjust its pricing strategy according to the customization degree of its product. In particular, for neutral products, the firm should lower its expected price in the second period comparing to its first period price, but for niche and mainstream products, the pricing adjustments over periods depend on the product value.
Highlights
The online shopping population is growing all over the world in recent years
Extant research shows that product mainstream level can moderate the impact of online consumer reviews on sales (e.g., [39], [45]). Motivated by these three findings, our study intends to investigate the interplay among pricing, online consumer ratings, and product customization degree
The impact of online reviews on consumer purchasing decisions can vary depending on the product category and we elaborate as follows
Summary
The online shopping population is growing all over the world in recent years. According to the monitoring data of China E-Commerce Research Center (100EC.CN), the number of online shoppers in China has reached 516 million in the first half of 2017, while this number was 480 million in the first half of 2016, exhibiting an increase of 7.5%. The literature shows that online consumer ratings influence consumers’ decisions and the sales (e.g., [15], [22]), Second, existing studies find that firms adjust price strategies in response to online reviews from both analytical and empirical perspectives (e.g., [9], [24], [30], [33], [36]). Extant research shows that product mainstream level (i.e., the degree of product customization) can moderate the impact of online consumer reviews on sales (e.g., [39], [45]) Motivated by these three findings, our study intends to investigate the interplay among pricing, online consumer ratings, and product customization degree.
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