Reviews are an integral part of the online shopping experience, and negative reviews can impact buyer decision making as well as pricing of products. Though they impact high-priced items less than low priced ones, bad reviews can push the price of any product down. To mitigate the impact of negative reviews, online sellers can use discount coupons with high perceived usefulness, share guidelines for giving feedback with customers, and use reviews to improve their products and services.
Whether it’s repair services from Urban Company, food from Zomato, or books from
Amazon, reviews are a core part of the online shopping experience. Customers invariably depend on reviews when deciding on their next purchase from online retailers since they are more trusted than seller-generated content. Retailers, therefore, need to ensure that they receive more positive reviews and, failing that, mitigate the impact of negative reviews. A study looks into how online reviews affect sales and pricing of e-commerce platforms and tries to answer the question: How can retailers counter the negative impact of bad reviews?
The study found that online reviews can impact the price of products. Positive online reviews can increase the price of low-priced products, whereas negative reviews can lower the price
of high-priced products. When a product has both kinds of reviews, to a certain extent, the positive reviews can offset the price reduction due to negative reviews. Sellers will still lower the price of the negatively reviewed product, but they will do it slowly. For example, instead of lowering the price from Rs 2500 to Rs 1800 in one go, the seller might reduce it to Rs 2300, followed by further reductions sometime later to Rs 2000 and then to Rs 1800.
While negative reviews definitely hurt online sales, the price of the item can make a difference. Buyers tend to be more tolerant of negative reviews of highly-priced products. That is, negative reviews hurt low-priced products more than they hurt high-priced products. This could be because customers see negative reviews of low-priced products as comments on product quality but believe negative reviews of high-priced products to be an adverse reaction to the high price.
This is usually explained by “loss aversion”. Loss aversion, a foundational concept in behavioural economics, explains that when there is a discrepancy between price and
expected utility, people might feel a sense of “loss” after paying a high price and leave a negative review. It is possible that, to an extent, customers take this behaviour into account and ignore negative reviews of high-priced products. For example, negative reviews would impact a Rs 3400 vacuum cleaner far more than a Rs 17000 robot vacuum.
Even online coupons can impact sales decisions for products with negative reviews. Coupons’ perceived usefulness promotes sales and reduces the impact of negative reviews
on purchase decisions. Perceived usefulness refers to the difference between the product price and the threshold of the coupon. For example, if a coupon says “Rs 60 off on purchase of Rs 500,” and a product costs Rs 460, the threshold is Rs 500. Customers would have to buy a second product worth Rs 40 to avail the coupon and get a discount of Rs 60. Therefore, this coupon is perceived to be useful. If the discount is Rs 30 instead, customers would not perceive the coupon as useful as they will spend more than they gain through the discount.
Coupons can also impact price change based on reviews. If customers find the perceived
usefulness of coupons to be high, sellers might increase the price of a product covered by the coupon despite negative reviews. For example, if a Rs 670 product has negative reviews, the seller would typically start offering it at a lower price, say Rs 600. But a Rs 80 off coupon might stall that decision and even encourage the seller to hike the price to Rs 700.
This study has relevant insights for online sellers and marketing managers. Based on the results, when faced with negative reviews, sellers should improve customers’ perceived usefulness of online coupons. They can do so by using lower thresholds for coupons or increasing the discount amount.
Sellers should also avoid reducing prices for products with negative reviews. Instead, they can use coupons with differentiated thresholds (price at which a coupon becomes
redeemable) to encourage customers to overlook the negative reviews. For example, for a facewash priced at Rs 180, they can offer coupons with thresholds of Rs 190, Rs 250, or Rs 400 instead of reducing the price to Rs 150. This will avoid a fall in sales volume and might even increase it as customers add more products to meet the threshold.
Another way that sellers can prevent the negative impact of bad reviews is by providing customers with guidelines on writing reviews. These days, several major e-commerce
platforms have suggestions on their reviewing page on how to review a product or service. Amazon, for instance, says, “What did you like or dislike? What did you use this product for?” to help customers write more focused, clearer reviews. This helpful feature can encourage more positive reviews or, at least, avoid the use of harsh tone and language in negative reviews.
Moreover, sellers should respond to reviews through proactive customer service. If there is a problem that can be resolved, they need to take steps to fix it. Providing coupons is an effective tactic, but it should not be the catch-all solution to all negative customer feedback. Actively taking reviews and feedback into consideration to modify products and services, passing on that information to vendors when needed, and implementing changes that meet customer expectations will help improve customer experience and, ultimately, pricing and sales.
Once sellers understand the relationship between reviews, pricing, coupons, and customer purchase decisions and take reviews more seriously in the overall product/service quality management process, they will be able to tackle the threat of negative reviews far more effectively.