Journal Article

A Dynamic Model of the Effect of Online Communications on Firm Sales

Rutz, Oliver J., McAlister, Leigh, Sonnier, Garrett P.

2011

Overview

Interpersonal communications have long been recognized as an influential source of information for consumers. Internet-based media have facilitated information exchange among firms and consumers, as well as observability and measurement of such exchanges. However, much of the research addressing online communication focuses on ratings collected from online forums. In this paper, we look beyond ratings to a more comprehensive view of online communications. We consider the sales effect of the volume of positive, negative, and neutral online communications captured by Web crawler technology and classified by automated sentiment analysis. Our modeling approach captures two key features of our data, dynamics and endogeneity. In terms of dynamics, we model daily measures of online communications about a firm and its products as contributing to a latent demand-generating stock variable. To account for the endogeneity, we extend the latent instrumental variable technique to account for dynamic endogenous regressors. Our results demonstrate a significant effect of positive, negative, and neutral online communications on daily sales performance. Failure to account for endogeneity results in a severe attenuation of the estimated effects. From a managerial perspective, we demonstrate the importance of accounting for communication valence as well as the impact of shocks to positive, negative, and neutral online communications.

• Publisher: INFORMS,Institute for Operations Research and the Management Sciences (INFORMS),TIMS/ORSA,Institute for Operations Research and the Management Sciences
• Subject: Absatz / Advertising / Analysis / Bayesian analysis / Bayesian estimation / Bayesian statistical decision theory / Communication / Computer mediated communication / Consumer behavior / Consumers / Dynamic modeling / dynamics / Dynamische Wirtschaftstheorie / endogeneity / Endogenous / Estimation bias / Firmenimage / Forecasting models / Information sharing / Information sources / Instrumental variables estimation / Internet / Interpersonal communication / Management science / Marketing / Mass media / Measurement / Motion pictures / Musical intervals / Online-Marketing / Operations research / Parametric models / Ratings & rankings / Sales / Sales forecasting / Sentiment analysis / Social networks / Stock sales / Studies / Telecommunications industry / Valence / Websites / Werbewirkung / word of mouth / Word of mouth advertising / Word of mouth marketing