CFDP 2254R2

When Do Consumers Talk?

Author(s): 

Publication Date: August 2020

Revision Date: March 2021June 2022

Pages: 48

Abstract: 

The propensity of consumers to engage in word-of-mouth (WOM) can differ after good versus bad experiences, resulting in positive or negative selection of user-generated reviews. We study how the propensity to engage in WOM depends on information available to customers through different marketing channels. We develop a model of WOM in which a target customer makes a purchase decision based on his private brand association, public product-specific information (e.g. from advertising or past reviews) and WOM content, and an early adopter of the new product engages in WOM only if her information is instrumental to the target customer’s purchase decision. We define brand image to be the distribution of the customers’ brand associations, and strength of the brand image to be the precision of this distribution. We show that if the brand image is strong, then in equilibrium only negative WOM can arise. In contrast, with a weak brand image, positive WOM must occur. Moreover, holding product quality fixed, a positive advertising signal realization leads to a more positive WOM selection. We use restaurant review data from Yelp.com to motivate our model assumptions and validate the predictions. For example, a textual analysis of reviews is consistent with prevalence of an instrumental motive for WOM. Further, a review rating for national established chain restaurant locations, where the brand image is strong, is almost 1-star lower (on a 5-star scale) than a review rating for a comparable independent restaurant, controlling for reviewer and restaurant characteristics.

Keywords: brand image, costly communication, recommendation engines, review platforms, word of mouth

See CFDP Version(s): CFDP 2254CFDP 2254R
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