The influence of online review adoption on the profitability of capacitated supply chains

Abstract

The paper explores the influence of online review adoption on supply chain profitability under the presence of a capacity constraint. Nowadays, customers increasingly rely on online reviews for decision making, and online retailers regard reviews as a norm. Although online reviews have been extensively examined in marketing disciplines, little research has been conducted to investigate their influence from a supply chain perspective. In addition, previous research has largely focused on how online review information can influence customer purchase behaviours, but ignores the more basic decision: whether and when companies should adopt reviews. This paper examines the online review adoption decision from a capacitated supply chain perspective through mathematical modelling and simulation. The simulation considers the influence of variables including online review adoption decision, capacity constraint level, lost sales penalty level, and product quality estimation on supply chain profitability. Generally, we find that online reviews can bring more profit to the supply chain than without online reviews, although such influence is moderated by the other three variables. The findings reveal the complexity of the contextual variable impacts on online review adoption, and demonstrate that decisions concerning the adoption of online reviews should take all supply-chain-related variables into consideration rather than only aiming for increasing customer orders.