Third-Party Product Review and Firm Marketing Strategy

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Abstract
Product reviews by third parties are growing in popularity. This paper examines when and how a manufacturing firm should adapt its marketing strategies to such reviews. For example, should a firm receiving an unfavorable review reduce its price or adjust its advertising? Should a winning product of a product review (e.g., “editor’s choice”) boost its advertising expenditure to spread the good news? How should firms’ strategic responses to product reviews differ across different types of product reviews (description vs. recommendation) and different advertising media (the reviewer’s publication vs. other media)? We develop a theory to address these issues and derive firms’ optimal responses to product reviews under different product/market/review/media conditions. We show that firms should choose advertising rather than price as a strategic variable in response to product reviews when enough consumers value horizontal product attributes. Surprisingly, we find that using a review-endorsed advertising format (i.e., advertisements containing third-party award logos) to broadcast its victory can hurt the winning product of a product review. Also, it is not necessarily wise for the winning products to boost advertising expenditures to spread the good news. Data from two industries—printers and running shoes—are used to illustrate some of our findings.

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