Chinese phone company Xiaomi recently sold a few thousands of phones to eager Indian buyers in a matter of seconds. Xiaomi hosted two online sales in two weeks on partner’s website; and saw over 100,000 people register for the sale. Remember, this is a brand that is new to India, alien to most India-based buyers, has not spent a penny on advertising, and had only announced its entry via a press conference and its social network presences. Who then spread the word around and persuaded no less than 100,000 people to register for the sales? 

Bloggers and news websites did it no doubt, on one hand; and favorable product reviews by thousands of Xiaomi fans and users completed the job. Anyone in the market for a new smartphone who read a few posts by actual buyers of the Xiaomi’s latest phone knew he or she had to get it. For established brands spending millions on their advertising in India, this consumer behavior can be baffling, and they really can’t be faulted.

The combined forces of Internet, social and mobile access are upturning the conventional rules of building brands. We have always believed that brand awareness and familiarity played a major role in what consumers bought when they were out in the market. This behavior is no longer valid today. In what is a fundamental shift in how consumers make purchase decisions, consumer-generated product reviews play a hugely important role in purchase decisions and product sales (as anyone who has ever booked a hotel via a Tripadvisor search will quickly acknowledge).

Just how important? A 2012 report by Bazaarvoice said that millennials (those born between 1977 and 1995) are more likely to make a purchase opinion on basis of recommendations from strangers through user-generated content (UGC) on a company website, than recommendations from friends and family.

For people who market those products, what this means is that traditional assets like brand name, loyalty and price and a number of other attributes that consumers use to establish quality, are becoming less important. Stanford professor Itamar Simonson and his co-author Emanuel Rosen make this point succinctly in their book titled ‘Absolute Value’ where they observe that if the consumers can make reasonable assumptions about the quality of a given product, they don’t have to rely on a brand name or a salesman’s recommendation.

This is a factor that clearly seems to have worked in Xiaomi’s favor, as it does for countless small-name hotels, restaurants and other places who succeeded in their market purely on account of glowing reviews on websites like Tripadvisor and Zomato. A quick lesson for brand managers? If your category attracts lots of consumer reviews, focus on the reviews more than you do on your advertising (to the tiny murmurs and grumbles we hear “but that is a function of how good the product is!”, we smile approvingly). HTC even ran a campaign armed with this lesson! More guidelines follow later in this post.

More importantly, in seeking opinions to guide their choices, shoppers prefer reviews from fellow consumers rather than a review by a critic. In a study titled ‘Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix’, researchers Yubo Chen and Jinhong Xie suggest that the information gleaned from consumer reviews is more valuable than third-party product reviews carried by experts and published in magazines, newspapers or blogs. While the former tends to examine the performance of a product from the perspective of its ability to match the consumers’ own usage situations, the latter continues to emphasize the performance of a product based on its technical specifications. They further add that these consumer reviews are most important for the unsophisticated consumers i.e., novices. This kind of consumers may hesitate to purchase if only seller-created product information is available.

However, this sales assistance does not come without cost. By allowing consumers to post their own product evaluations, the seller essentially creates a new information channel for consumers, which thereby eliminates the seller’s capability to control the supply of product information. Our argument is this: if a consumer is going to write something negative anyway, why not allow her the privilege on your own platform so that (a) it is in your direct line of sight (b) you can take public and demonstrable action, rather than force her to write on Facebook or Twitter (or worse, become social media sensations like these)?

So, how does an online seller make use of these consumer reviews and more importantly ensure that these help them increase his profits? The researchers provide the following guidelines:

  • It is detrimental to a seller to supply consumer reviews unless such information is sufficiently informative. In other words, if a seller has decided to supply reviews, they should ensure that the reviews are of high-quality.
  • The two types of information-consumer reviews and seller-created product attribute information—can be complements or substitutes. Such interaction exists when the review information is sufficiently informative.
  • When the product cost is low and/or there are sufficient experts (more sophisticated) product users, the two types of product information are complements. In this case, the seller should increase the amount of its own product attribute information conveyed to potential customers when consumer reviews become available.
  • On the contrary, when the product cost is high and there are sufficient novice (less sophisticated) product users, the two types of product information are substitutes. Here, the seller should decrease its product attribute information supply when consumer reviews become available.
  • Offering consumer reviews can benefit products with a sufficient number of novice consumers (e.g., for technology driven products), but can hurt the seller if the segment of expert consumers is relatively large.
  • The timing of the introduction of consumer review information can be an important strategic variable for a seller. When a seller is able to decide such timing at the individual product level, delaying the availability of consumer reviews for a given product can be beneficial if the size of the expert segment is relatively large and cost of the product is low.

Of course, in a premise built completely on peer-to-peer trust, the biggest disservice an online retailer can do to its brand to lose the credibility of reviews posted on their website. And yet, many Indian retailers have been caught red-handed fudging consumer reviews (no, we are not going to name any of them here). Encouragingly, when selling the Xiaomi phone, Flipkart only allowed actual buyers to post a review of the phone. This is a trust-building tactic, dear reader, we wholeheartedly endorse.

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