The Spillover Effect of WOM Formed by Online Reviews and Its Difference among Brands

Abstract

Consumers increasingly rely on online reviews to help them make consumption decisions. Meanwhile, online reviews also facilitate the comparison of product information. Consumers typically pick one from a bunch of similar products by comparing available product information rather than only consider the items they finally purchase. Therefore, the information about one product could affect consumers’ perception of related products, which is known as information spillover. Understanding the spillover effect is significant for businesses to have a full picture of the influence of online reviews. Although recent research has shown significant interest in exploring the spillover effect, especially those from marketing campaigns, little has been known on the spillover effect caused by online reviews. This research aims to study the spillover effect of online WOM among competitive products and the moderating effect of brand strength and brand relationship based on the accessibility-diagnosticity theory. Using the cutting-edge Bayesian dynamic linear model, this empirical analysis disassembles the influence of reviews into a two-stage dynamic process. At the first stage, online reviews of different valence influence consumers’ latent interest in products, which can be seen as online WOM from the perspective of product providers. Consumers’ latent interests in different products influence each other, during which the spillover effect occurs. At the second stage, the change of such latent interests affects the performance of a product in the end. Using the check-in data of the catering industry provided by a location-based service company, this research finds that online reviews have a negative WOM spillover effect among competitive brands. In other words, the increase of online WOM of one product will damage the performance of its competitors. This negative spillover is asymmetric among products with different brand strength. Products with higher brand strength have a larger spillover effect on products with lower brand strength, while they get less affected by other brands. Products sharing the same brand name could generate value transfer and have a positive spillover effect among each other. What’s more, despite of the resistance to the negative spillover from competitive brands, strong brands suffer more loss from their negative WOM. Therefore, it is especially important for them to maintain positive online WOM. This study makes three main theoretical contributions. Firstly, previous studies tend to focus only on the direct effect of online reviews on product performance, while this research discusses its spillover effect based on the accessibility-diagnosticity framework, expanding the perspectives on the effect of online reviews. Secondly, this research emphasizes the important role that brands play in the online environment and provides a new angle to analyze the interaction of traditional business characteristics and the online environment. Although social media has dramatically changed the way how a business reaches its customers, building a strong brand is still crucial to gain competitive advantages. Thirdly, this research examines and discusses how reviews of different valence affect online WOM and how this effect differs among brands, contributing new empirical evidence to the usefulness of online reviews.