In Jiang and Guo (2015), we analyze firms’ review system designs and product pricing strategies – what rating scale to use, whether to offer granular review reports, and how to set price accordingly. We show that strategically choosing rating scale and offering granular review reports based on product types help firms reap greater benefits from product review systems and consequently improve their profitability.
In contrast to the commonly used five-star rating scale, we find that the “like/dislike” scale is more beneficial for niche products, such as customized products offered on Etsy, whereas the 10-star scale is more beneficial for mainstream products. For products with high misfit cost, such as clothing and shoes, firms are advised to offer granular review reports with ratings of specific product attributes, such as comfort and style, to reduce consumer uncertainty of product fit. Different pricing strategies should be deployed: lower-bound pricing for high-quality niche products to take advantage of positive word-of-mouth; upper-bound pricing for high-quality mainstream products to profit more from the initial sale period.
Yabing Jiang and Hong Guo. 2015. “Design of consumer review systems and product pricing,” Information Systems Research, Volume 26, Issue 4, pp. 714-730.