Word of mouth has been the holy grail of retailer marketing for decades. Countless research indicates that receiving recommendations from other customers significantly impacts the final purchase decision. In fact, according to Nielsen’s Global Trust in Advertising Survey, 88% of global consumers trust word-of-mouth recommendations from friends and family above all other forms of advertising.
Today, a new branch of word-of-mouth marketing has emerged, encompassing online customer reviews as well as social media posts. While research like Nielsen’s reveal the strong influence of online consumer opinions, (71% of global consumers trust them), very little research is available that uncovers just how much of an impact this user-generated content can have on retailers’ bottom lines.
The Spiegel Research Center, a research division of Northwestern University’s Medill School of Journalism, Media, Integrated Marketing Communications, wanted to fill this knowledge gap. Executive Director Tom Collinger and Research Director Edward Malthouse conducted several research projects on the effect of customer reviews on conversions. Their research explored how the number of reviews, the average star ratings, the price of the items reviewed, and several other factors impact the ultimate purchase decision.
The Center also explored in a separate research project how negative posts on social media impact customer brand loyalty, and the best ways for retailers to respond to these posts.
We spoke with both Tom and Edward to learn more about the Spiegel Research Center’s findings and understand how retailers can nurture a positive review environment and increase conversion rates as much as 270%. Check out the full podcast and top sound bites from the interview below.
Top Sound Bites
(edited for clarity and brevity)
On why customer reviews are such an important, yet under-researched area of retail. . .
Tom Collinger: [Customer reviews] are a relatively newer form of customer engagement that is having an effect on those who post and view them. But frankly, there was no answer to, ‘Well, by how much? And under what circumstances?’ So it absolutely was in the center of the Speigel Research Center’s bullseye because it was in the retail space and it was an area that had very little research around it.
On the role decision uncertainty plays in influencing consumers who view customer reviews. . .
Edward Malthouse: How do reviews affect you when you have decision uncertainty? For example, if the product has four-and-a-half stars, how is that knowledge going to affect me? In the case of Diet Coke, I’m going to ignore the review, even if it’s a two-star review, because I know I like the product and there is no uncertainty there. But if it’s a baby seat or a washing machine, where there is that uncertainty about the product I’m buying, the effect of the valence–the number of stars–is going to matter a lot more to me. So when I have decision uncertainty, a four-and-a-half-star product I’m likely to buy, a two-star product, I’m not likely to buy.
On the importance on the number of customer reviews. . .
EM: The number of reviews is the third moderator, if you will. And what we found is that the number of reviews doesn’t have to be that large. . .
Specialty gift retailer Hammacher Schlemmer gave us one year of customer review data. So what we could do over the course of this year was look at a product when it’s new and didn’t have any reviews. So we could look at, ‘What is the conversion rate of that product when it had zero reviews? What was the conversion rate when it had one review?’ What we learned was, just the mere presence of reviews would increase the conversion rate. The typical conversion rate for something without any reviews was around a half a percent. But as soon as the product reached, say, 10 reviews the conversion rate would increase to about 1.5%, which is a three-time increase.
On the difference between viewing a review peripherally and engaging with a review. . .
TC: When a consumer simply observes stars, you can characterize that as a very passive engagement. But as soon as I scroll down to start reading reviews, I’ve taken an action. Regardless of what I’m about to see when I scroll down in the reviews, I have taken an action, which clearly is a signal that I have greater interest, involvement, curiosity when it comes to this particular product. It may be that it’s because I do have some decision uncertainty, but I’m now engaged. So the important thing when we are talking about customer reviews and their influence is not just did you see it, but did you engage with it?
On why retailers should consider negative word of mouth on social media with a grain of salt. . .
TC: If you are treating every post as having the same relative importance and value, you can chase tremendous, blind alleys. I mean, there’s a very real, live example in front of us that I think is hugely influential when we are talking about social media, when we are talking about reviews, when we are talking about the voice of customers. Look at what happened recently with Nike [making Colin Kaepernick the face of its ad campaign]. Nike came out and made a very uncommon kind of a statement in their advertising that supports a position that is quite unpopular with a pocket of Americans.
Well, it turns out that if they were just looking at social media, they most likely would have shut down the campaign within minutes after it launched. In fact, they let it go. Their response in public forums was very much taking the high road. And by the way, their business is up dramatically.
