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The market for \"primeur\" wine in the Bordeaux region allows producers to sell wine that is still in barrels. As with all experience goods, producers send quality signals to uninformed buyers. Using original data on Bordeaux wines, we show that the pricing behavior of producers depends to a large extent on their reputation, and much less on short-term changes in quality (as measured by experts' grades). We also find that the primeur price has an informative role, since a 10% increase in primeur price leads to a 3% increase in prices on the market for bottled wine.

Customer reviews are increasingly available online for a wide range of products and services. They supplement other information provided by electronic storefronts such as product descriptions, reviews from experts, and personalized advice generated by automated recommendation systems. While researchers have demonstrated the benefits of the presence of customer reviews to an online retailer, a largely uninvestigated issue is what makes customer reviews helpful to a consumer in the process of making a purchase decision. Drawing on the paradigm of search and experience goods from information economics, we develop and test a model of customer review helpfulness. An analysis of 1,587 reviews from Amazon.com across six products indicated that review extremity, review depth, and product type affect the perceived helpfulness of the review. Product type moderates the effect of review extremity on the helpfulness of the review. For experience goods, reviews with extreme ratings are less helpful than reviews with moderate ratings. For both product types, review depth has a positive effect on the helpfulness of the review, but the product type moderates the effect of review depth on the helpfulness of the review. Review depth has a greater positive effect on the helpfulness of the review for search goods than for experience goods. We discuss the implications of our findings for both theory and practice. [PUBLICATION ABSTRACT]

Electronic commerce has grown rapidly in recent years. However, surveys of online customers continue to indicate that many remain unsatisfied with their online purchase experiences. Clearly, more research is needed to better understand what affects customers' evaluations of their online experiences. Through a large dataset gathered from two online websites, this study investigates the importance of product uncertainty and retailer visibility in customers' online purchase decisions, as well as the mitigating effects of retailer characteristics. We find that high product uncertainty and low retailer visibility have a negative impact on customer satisfaction. However, a retailer's service quality, website design, and pricing play important roles in mitigating the negative impact of high product uncertainty and low retailer visibility. Specifically, service quality can mitigate the negative impacts of low retailer visibility and high product uncertainty in online markets. Website design, on the other hand, helps to reduce the impact of product uncertainty when experience goods are involved.

By lowering the costs of gathering and sharing information and offering new ways to learn about products before purchase, the Internet reduces traditional distinctions between search and experience goods. At the same time, differences in the type of information sought for search and experience goods can precipitate differences in the process through which consumers gather information and make decisions online. A preliminary experiment shows that though there are significant differences in consumers' perceived ability to evaluate product quality before purchase between search and experience goods in traditional retail environments, these differences are blurred in online environments. An analysis of the online behavior of a representative sample of U.S. consumers shows that consumers spend similar amounts of time online gathering information for both search and experience goods, but there are important differences in the browsing and purchase behavior of consumers for these two types of goods. In particular, experience goods involve greater depth (time per page) and lower breadth (total number of pages) of search than search goods. In addition, free riding (purchasing from a retailer other than the primary source of product information) is less frequent for experience than for search goods. Finally, the presence of product reviews from other consumers and multimedia that enable consumers to interact with products before purchase has a greater effect on consumer search and purchase behavior for experience than for search goods.

We provide a dynamic, game-theoretic model to examine a firm’s quality and pricing decisions for its new experience goods. Early consumers do not observe product quality prior to purchase but can learn it after purchase and share that product-quality information with later consumers—for example, through online reviews. Both the firm’s quality decision and its cost efficiency are the firm’s private information and not directly observed by the consumer. The early consumers can make a rational inference from the firm’s price about its cost and quality taking into account the firm’s profit incentive from the later informed consumers. We find that in equilibrium a more cost-efficient firm chooses higher quality than does an inefficient firm. One might intuit that a firm will offer higher quality if its high efficiency is known to consumers than if its efficiency is not known, because it will no longer need to convince consumers that it is not the inefficient firm. Our analysis shows that, surprisingly, the opposite may be true—when a firm’s high efficiency is publicly known, the firm may reduce its product quality rather than increase it. Furthermore, consumers’ knowledge about the firm’s cost efficiency can reduce the consumer surplus. We also show that an improvement in the average cost efficiency in the market can lower the consumer surplus. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2930 . This paper was accepted by J. Miguel Villas-Boas, marketing.

Many software firms offer a fully functional version of their products free of charge, for a limited trial period, to ease consumers' uncertainty about the functionalities of their products and to help the diffusion of their new software. This paper examines the trade-off between the effects of reduced uncertainty and demand cannibalization, uncovers the condition under which software firms should introduce the time-locked free trial software, and finds the optimal free trial time. As software firms have the option of providing free trial software with full functionalities but a limited trial time or limited functionalities for an unlimited trial time, we develop a unified framework to provide useful guidelines for deciding which free trial strategy is preferred in the presence of network externalities and consumer uncertainty.

Online retailers are increasingly using information technologies to provide value-added services to customers. Prominent examples of these services are online recommender systems and consumer feedback mechanisms, both of which serve to reduce consumer search costs and uncertainty associated with the purchase of unfamiliar products. The central question we address is how recommender systems affect sales. We take into consideration the interaction among recommendations, sales, and price. We then develop a robust empirical model that incorporates the indirect effect of recommendations on sales through retailer pricing, potential simultaneity between sales and recommendations, and a comprehensive measure of the strength of recommendations. Applying the model to a panel data set collected from two online retailers, we found that the strength of recommendations has a positive effect on sales. Moreover, this effect is moderated by the recency effect, where more recently released recommended items positively affect the cross-selling efforts of sellers. We also show that recommender systems help to reinforce the long-tail phenomenon of electronic commerce, and obscure recommendations positively affect cross-selling. We also found a positive effect of recommendations on prices. These results suggest that recommendations not only improve sales but they also provide added flexibility to retailers to adjust their prices. A comparative analysis reveals that recommendations have a higher effect on sales than does consumer feedback. Our empirical results show that providing value-added services, such as digital word of mouth and recommendations, allows retailers to charge higher prices while at the same time increasing demand by providing more information regarding the quality and match of products.

Purpose This study aims to investigate the extent and pattern of the influence of one of the most important decision-making tools in the context of social commerce. This study demonstrates how much customer testimonials (including verified purchases and ordinary users) can influence the sales rank of experience and search goods. Design/methodology/approach The data were collected by text mining and performing a content analysis on the XML documents of Web pages and processing them. For search goods, 22,311 opinions were recorded regarding 95 mobile phones. Additionally, for experience goods, 67,817 opinions were recorded regarding 162 books in the Amazon online store. The data were analyzed by functional regression method in longitudinal data analysis. Findings In terms of importance, the opinions and recommendations of verified purchases had a 60% greater impact on the sales rank of experience goods than the opinions and recommendations of ordinary users. In search goods, the opinions of ordinary users had a greater impact than the opinions of verified purchases. The historical effect of the opinions of ordinary users at the end of the review period on sales rank was evident, while the historical effect of the verified purchase viewpoints during the review period had a nonlinear curve. The results showed that it was necessary to increase the volume of comments to increase their reliability in experience goods. Practical implications Measuring the effect of customer testimonials helps the managers of retail websites design algorithms and online suggestion systems, thereby improving the sales of their products by providing information desired by customers. Social implications Individuals can be a source of information and influence the buying decision process of others by sharing their experiences. This issue helps reduce the purchase risk and explains the importance of interaction and sharing the customer’s experience. Originality/value Analyzing the impact of customer testimonials by separating verified purchases and ordinary users is one of the advantages of this study. The quantitative estimation of the impact of recommendations and the provision of a model of their historical effect is one of the approaches not addressed in similar studies.

We examine the profitability and implications of online discount vouchers, a relatively new marketing tool that offers consumers large discounts when they prepay for participating firms' goods and services. Within a model of repeat experience good purchase, we examine two mechanisms whereby a discount voucher service can benefit affiliated firms: price discrimination and advertising. For vouchers to provide successful price discrimination, the valuations of consumers with access to vouchers must generally be lower than those of consumers who do not have access to vouchers. Offering vouchers tends to be more profitable for firms that are patient or relatively unknown, and for firms with low marginal costs. Extensions to our model accommodate the possibilities of firm price reoptimization and multiple voucher purchases. We find potential benefits of online discount vouchers to certain firms in certain circumstances, but vouchers are likely to increase firm profits under relatively narrow conditions.

The “intangible” nature of e-commerce may cause shoppers to be uncertain about whether products ordered online will fit their needs or perform up to expectations. Such uncertainty is a dimension of consumer risk, or feelings that result because the actual outcome of a purchase decision can only be known in the future. However, the ability of e-retailers to offer a plethora of product-related information can ameliorate this uncertainty. This research assesses the influence of three online retailer communication practices—evoking vividness through pictures, allowing consumers to control information presentation, and presenting information from third-party sources. We demonstrate that these practices materially affect consumer perceptions of product performance uncertainty. Importantly, we also find that the influence of the practices differs by the search or experience orientation of the product, sometimes in counterintuitive ways. These results can serve to help enhance the effectiveness of e-retailers’ communications and, in the case of multichannel retailers, help determine which products are best suited for different channels.