Online social media and networks have a growing role in marketing, which has important implications for how consumers, channels, and companies perform. In social media settings, consumers provide online feedback about products, and this feedback is visible to other agents, including other consumers, channel partners, competitors, and investors. Moreover, there is inherent variety in the way the feedback is received and processed (e.g., ratings, reviews) and the forums in which it is provided. The myriad characteristics of online social media environments have effects on outcomes of interest to marketers and implications for managerial practice.
This essay summarizes some key findings from recent papers in Journal of Marketing on the topic of social media and networks and their implications for managerial practice.
The Multifaceted, Contingent Impact of Social Media
The key findings across the different papers can be summarized along two broad themes:
1. Online reviews and ratings affect many different metrics, both online and offline, such as consumer ratings, consumer purchase conversion rates, brand evaluations, purchase intentions, firm performance, and firm value.
2. The effects of online reviews and ratings on performance metrics are contingent on other characteristics, including their own, brand, consumer, and firm characteristics.
Taken together, the stream of papers on social media, which use various methodological approaches (e.g., experiments, secondary data, stock return modeling) and product settings (e.g., hotels, consumer durables, books, films), generate robust practical implications for managers seeking to leverage their social media programs.
Findings and Managerial Implications
Effects on online ratings. Sridhar and Srinivasan (2012) note that consumers’ online ratings of a service (i.e., hotels) are influenced not only by the quality of their service experiences but also by the other online ratings. The results from a model using 7,499 consumers’ online ratings of 114 hotels support their premise. Other consumers’ online ratings weaken the effects of positive and regular negative features of service experience but can either exacerbate or overturn the negative effect of failure, depending on the quality of failure recovery.
For managerial practice, these findings suggest that social influence effects make positive online product ratings a double-edged sword, exacerbating the negative effect of failure and strengthening the benefit of failure recovery.
Effects on consumer conversion rates. Ludwig et al. (2012) find that the semantic content and style properties of verbatim online reviews influence online retail sites’ conversion rates. The authors employ text mining to extract changes in affective content and linguistic style properties of book reviews on Amazon.com. They find that the influence of positive affective content on conversion rates is asymmetrical, such that greater increases in positive affective content in customer reviews have a smaller effect on subsequent increases in conversion rate. No such tapering-off effect occurs for changes in negative affective content in reviews. Furthermore, positive changes in affective cues and increasing congruence with the product interest group’s typical linguistic style directly and contingently increase conversion rates.
For managerial practice, these findings suggest that managers should identify and promote the most influential reviews in a given product category, provide instructions to stimulate reviewers to write powerful reviews, and adapt the style of their own editorial reviews to the relevant product category.
Effects on consumer purchase intentions. Naylor, Lamberton, and West (2012) find that the decision to hide or reveal the demographic characteristics of a brand’s online supporters influences consumers’ brand valuations and purchase intentions. The results from four studies indicate that even when the presence of these supporters is only passively experienced and virtual (“mere virtual presence”), their demographic characteristics can influence a target consumer’s brand evaluations and purchase intentions.
For managerial practice, these findings suggest that brand managers can decide whether to reveal the identities of their online supporters or to retain ambiguity according to (1) the composition of existing supporters relative to targeted new supporters and (2) whether the brand is likely to be evaluated singly or in combination with competing brands.
Effects on product sales. Ho-Dac, Carson, and Moore (2012) find that online customer reviews affect sales of Blu-Ray and DVD players. Positive (negative) online customer reviews increase (decrease) the sales of weak brands (i.e., brands without significant, positive brand equity) but have no effect on strong brands. Higher sales lead to more positive online customer reviews, which in turn aid a brand’s transition from weakness to strength.
For managerial practice, their takeaways are similar to those suggested by Ludwig et al. (2012).
Value of a product in a network. Focusing on an integrated view of the value of a product in a network, Oestreicher-Singer et al. (2013) find that products do not exist in isolation but rather influence one another’s sales, creating a virtual online network. Using an empirical approach, which is in the spirit of the PageRank algorithm, they use data from a large-scale e-commerce site and separate a product’s value into its own intrinsic value, the value it receives from the network, and the value it contributes to the network. They find that the value of low sellers may be underestimated, whereas the value of best sellers may be overestimated.
For managerial practice, these findings suggest that managers can use value-related measures to better understand marketing in the presence of product networks. Given the possible discrepancy demonstrated between revenue and network value, firms should look beyond revenue when making such decisions. The ubiquity of product networks and the network value of a given product can help managers make informed product management and marketing-mix decisions when taking into account how each product affects the other products connected to it.
Effects on firm value. Focusing on a more distal outcome, Chen, Liu, and Zhang (2012) report that third-party product reviews (TPRs) play significant roles as investors update their expectation about a new product’s sales potential. Specifically, online TPRs of new products influence stock returns of the firms introducing the product in the direction of their valence. However, the impact comes from the valence of a review that is measured relative to other, previously published reviews and not from the absolute valence of the review itself. The authors further study the dynamics of TPR impact on firm value and find that the impact exists only for prerelease reviews and is the strongest on the product release date; it disappears when sales information becomes available after product release. The authors also find that advertising spending increases the positive impact of TPRs on firm value and buffers the negative impact.
For managerial practice, these findings suggest that firms should pay attention to TPRs and actively track and use them to aid product development and introduction to create firm value. Firms can strategically manage the impacts of TPRs by using advertising to stimulate positive stock market reactions should relatively negative reviews occur. When negative TPRs are likely to occur, increasing the amount of advertising helps reduce their negative impact.
In summary, online social environments are an exciting and important development changing the dynamics of markets and firms. The collective implications derived from this recent stream of research are useful to senior marketing executives tasked with managing and leveraging their firms’ social media programs.
This article was written by the AMA contributor: Raji Srinivasan and this post was re-purposed from the American Marketing Association. Read more Marketing News here.