When does online review matter to consumers? The effect of product quality information cues

Abstract

Word of Mouth (WOM) is powerful, and online reviews are often the most accessible WOM information source in electronic commerce. Maintaining favorable online reputation has been the top priority for businesses, and investments in improving online review valence have been increasing. Extensive studies explored how online reviews might influence sales, however, the results have been inconsistent. This study explores whether and how consumers might incorporate online reviews into decision making based on signaling theory and examines when online review valence influences sales and when it might not. In a signaling perspective, online reviews might serve as a product quality signal, and subsequently, consumers might incorporate less the online review information into decision making if other product information cues such as expert ratings or brands help to verify the product quality. The findings from 633,029 consumer decisions on a hotel-booking website indicate that product quality information cues moderate the effect of online reviews on purchase likelihood. Also, product quality information cues were highly endogenous in estimating the effect of online reviews on sales. Online reviews are not likely to be a significant influencer on sales if the seller signal product quality with convincing information cues.