Reviews and Ratings
Reviews on SNs work by individuals voluntarily sharing information or, more recently, by firms paying users to “like” their product. The network then becomes a high-speed WOM medium, which is very potent in the advertising world. Social advertising is a term that applies to both forms of customer reviews, voluntary and paid, since they rely on TRR&R - this is the glue that holds the network together. An online ad that the consumer has agreed to display on an SN, along with his/her picture and name, can be a significant development for advertisers since they can tap into an individual’s SN for targeted advertising. The introduction of improved privacy controls can result in users being twice as likely to click on personalized ads. User-generated content makes the ad more persuasive (people are more likely to buy) and also have high reach (appeal to more consumers), since people are engaged by these ads and thus are sharing them as well. However, ads must not be obviously commercial when exploiting SM. While sharing of ads may increase, the likely provocative nature of the ads will reduce its persuasive content. Tucker feels that humor and visual appeal are more persuasive than outrageousness, sadness or anger .
Customer reviews represent free advertising, but they are also optional viewing. They generate collective wisdom due to pooling or crowd sourcing of all past users of the product or service but what is the incentive for users to write reviews? Social influence is thought to be the most important factor inducing reviewers, but they could be misleading as they may simply follow previous reviews, thereby generating an information cascade rather than being independent sources of information or representing true beliefs. Reviews are also time sensitive, since the product may change and earlier reviews become irrelevant. The salience of the review or information is also important. Salience represents the ease of inferring relevant information, so that a lengthy review, which addresses marginal concerns of the user, will be disregarded. Numerical reviews raise another concern. These are reviews where users assign “stars” or a numerical score to a product. Does a product with five stars from ten reviewers outrank one with two stars from fifty reviewers? Would it matter if the latter product had reviews dated six months ago while the former’s reviews were more recent?
Some firms can game the system by paying certain consumers to write favorable reviews. Mayzlin et al.  find that fake or promotional reviews are more likely when the firms are independently owned and smaller compared to large chains.23 Using data on TripAdvisor and Expedia they find that an independent hotel owned by a small owner will generate an incremental seven more fake positive TripAdvisor reviews than a chain hotel with a large owner. This suggests that a chain hotel that is located next to an independent hotel will have six more fake negative TripAdvisor reviews compared to an isolated chain hotel. The reputational benefit of posting a fake review accrues to only one hotel (the one posting the review) while the cost of posting the fake review (getting caught) multiplies in the number of hotels. This explains why smaller entities have greater incentives to post fake reviews. Further, smaller firms are more likely to be owner-operated so their residual claims on profits are larger than for employees of larger firms, who have no residual claims, but instead have a fixed salary.
User reviews matter less when preferences are heterogeneous. Using data from the iPhone ecosystem, Yin et al. find that previous app experience but no updating incorporating user reviews, enables a game app to become a killer app, while the opposite is true of non-game apps . Ease of entry into the game app industry makes it vital for the new entrant to carve out demand the first time.
On balance, how has digital and communication technology (DCT) altered the world of advertising and media content? Replication and personalization of ads made possible by digitization has reduced the tradeoff between customization and mass marketing so product information is targeted. Before the commercialization of the Internet, firms had to choose between personal selling, which is an incredibly rich form of marketing communication but has limited reach since there are no economies of scale, and media or television advertising, which achieves impressive reach but is not a rich form of marketing communication. Now, firms can harness real-time marketing by following conversations, participating as in a social gathering, staying alert for new developments such as popularity of a new Twitter account so they can quickly tailor ad content to real-time news. Online reputation management is a powerful strategy where firms encourage new customers to write reviews and actively monitor reviews.24