What others do and say

We have been looking at schools for our youngest. It is not an easy task; even if you have been there before; and even if the child in question is just a few years old. At least, I know that I am not alone (minus the gifted part).

In the process, we considered ‘product characteristics’ such as the class sizes, the buildings, what languages they teach or what extra-curricular activities they offer. We also engaged in ‘observational learning’. For instance, we looked at their ratings, other children attending the school, or which schools their students traditionally move on to. And, of course, we used ‘word-of-mouth’ research by talking with friends who have children there or who know someone who knows someone whose children attended that school. The other day I even caught myself asking the opinion of someone who just happened to mention that he runs the chess club in one of the schools in question.

In a curious twist of fate, I came across a really interesting paper that I would like to share with you. The paper was written by 3 researchers based in the US: Yubo Chen, Qi Wang and Jinhong Xie. It was published in the April issue of the Journal of Marketing Research and is entitled ‘Online Social Interactions: A Natural Experiment on Word of Mouth Versus Observational Learning’. You can find the paper here.

The paper’s authors start by describing how we are influenced by world of mouth (WoM) and observational learning (OL), in our purchase decisions. Both WoM and OL have changed dramatically with the popularisation of the Internet – as evidenced by online discussion forums, product reviews’ websites, information about other buyers’ past purchases or blogs. Chen and colleagues set out to investigate how WoM and OL interact with each other and how they affect sales at different stages of the product’s lifetime. Taking the specific case of sale of digital cameras in Amazon.com, they concluded that:

1) Negative WoM has greater impact on sales than positive WoM, WHEREAS
2) The opposite happens with OL.
3) The effects diminish over the product life-cycle.
4) The positive impact of OL becomes stronger when the number of WoM increases (though, apparently, it is not affect by whether the messages are positive or negative).

I found these conclusions very interesting – particularly that the effects decrease over time and that quantity seems to be more influential than quality. I am not sure what is the dynamic at play here – it may have to do with perceptual filters. What do you think? In the case of the school decision that I mentioned earlier in this post, I found myself agreeing with opinions (WoM) that fit my OL assessment and discounting those that went against it.

What do these findings mean for businesses?

These are some of the practical applications of the paper’s findings:
– For mass-market products, it is important to get as many buyers as possible in the early stages. Why? Because doing so means that the product is featured in best-sellers lists and recommendations of the type ‘buyers who bought this product, also bought…’. I.e., early adoption increases (positive) OL. Positive OL will send a (positive) signal to other potential buyers and, therefore, impact positively on future sales.

– Sellers of mass-market products should also encourage their customers to post reviews, even if some posts are less than complimentary. This is because the positive impact of OL is amplified by the volume of WoM but not significantly impacted by the type of message.

– For niche products, it is wasteful to invest in OL. Instead, sellers should invest in product development and other initiatives to create very satisfied customers who go on to engage in positive WoM.

– Online infomediaries are more relevant for mass-market products than for niche ones.

P.S. – I am doing some research on electronic word of mouth. I am particularly interested on attitudes of users (i.e., people who post comments about a company, brand or product) towards organisations interacting with them following those posts.

If you know a good academic or practitioner study related to this topic, please let me know in the comments box below.