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‘Top reviews’ can help sway shoppers, but there are limits

Although featured — or top — reviews on e-commerce sites can help cut down on information overload for customers trying to make purchasing decisions, too many such top reviews can pose an overload of their own, according to researchers.

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Although featured — or top — reviews on e-commerce sites can help cut down on information overload for customers trying to make purchasing decisions, too many such top reviews can pose an overload of their own, according to researchers.

In a study of products and product reviews on online retail giant Amazon, the researchers found that top reviews — which are featured reviews that consumers have endorsed as the most helpful — can lead to higher sales and improved customer satisfaction. However, they added that when there are too many featured reviews, their influence can start to wane.

“We found that there is a situation that when there are too many top reviews, you fall right back into the trap where there is just too much information for the consumer,” said Wael Jabr, assistant professor of supply chain and information systems in the Penn State Smeal College of Business. “In this natural experiment we had some products with just three top reviews and others with significantly more. For products with way more top reviews, we saw the value of those top reviews goes away.”

The researchers used data from about 2.2 million reviews of 1,000 products on Amazon, including all review-related information, such as the overall number of reviews and featured reviews of those products. Sentiment of reviews was determined by the rating the customers gave the product. The researchers also tracked the Amazon sales ranking of the studied products over a 10-month period.

The effectiveness of the top reviews was based on how the performance of individual products changed over time. Specifically, the researchers looked at how the reviews started to disperse in their ratings and how the product sales rank changed. 

The study was published in Management Information Systems Quarterly.

According to Jabr, e-commerce sites chose to feature reviews because popular products tended to attract numerous reviews. The number of reviews for some of these products can be staggering, he added.

“For example, when Amazon put out the Echo Dot smart speaker, more than a million customers reviewed that product within the first four years of its release,” said Jabr. “So, do we need a million reviews to make a good decision on what to buy? Probably not. At a certain point, then, companies started to realize there is an overload that customers will face when we have to navigate this content. Retailers eventually came up with a variety of ways to kind of help you navigate this content, one of which is featuring reviews.”

Sentiment match

The researchers also found that the influence of top reviews is strengthened when their opinions tend to match the overall sentiment of the other reviews.

“When you look at the reviews, Amazon shows you the overall ratings of the reviews — for example, how many people gave it a four-star rating, or, how many people gave it a two or three, etcetera,” said Jabr. “We wondered, then, if the top review effect can be amplified. And it can. We found that when the distribution of top reviews and the distribution of overall reviews match, then the power of top reviews to influence gains strength. It is almost like there is a confirmation when the top reviews match what the crowd is saying.”

The power of top reviews to lift sales and satisfaction is limited, however, said Jabr, who worked with Mohammad Rahman, associate professor of management at the Krannert School of Management at Purdue University. For example, they found that top reviews lack the power to improve the status of less popular products.

The findings could help companies design better webpages while also helping customers make better decisions, said Jabr.

Selling isn’t enough

“Platforms, such as Amazon, are, of course, in the business of selling stuff, but selling stuff alone is not enough,” said Jabr. “Platforms want consumers satisfied with their purchases — and not return those purchases. They also want repeat consumers. In fact, Jeff Bezos himself is quoted saying, ‘We don’t make money when we sell things. We make money when we help consumers make better decisions.’”

The study explores whether there is a certain magic number of reviews as being an optimal amount of top reviews, according to the researchers.

“While the natural experiment does not compare every combination of numbers — for example, two reviews compared to three reviews, or two compared to four — we found that products with three reviews faired better than products with a varying number of reviews ranging from four to 10,” said Jabr. 

In addition to being thoughtful about selecting and displaying top reviews on a webpage, the researchers also suggest that, at a certain point, companies should switch from encouraging customers to review products to asking them to endorse reviews.

“Retailers often default to sending you an email saying, ‘Please rate our product,’ which we think is great,” said Jabr. “But when there are enough reviews, they may want to find a way to nudge the customers to decide on top reviews because that’s going to be much more valuable then writing one more review.”

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E-commerce retailers can save money by considering pick failures at stores

While warehouses are built for efficiency in picking, packing, and shipping items, pick failures are much higher in physical stores that are not designed for these purposes for several reasons (e.g., customers moving inventory without tracking, delivery receiving and recording errors, issues with labeling, theft).

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The share of e-commerce retail sales has grown steadily over the last decade. This trend has been driven by retailers with traditional brick-and-mortar stores adopting online channels to connect to customers. In a new study, researchers explored the world of omnichannel retailing — the merging of in-store and online channels in which customers can select from a combination of online and physical channels to place and receive orders.

The study examined top U.S. retailers’ use of omnichannel ship-from-store programs in which retailers use store inventory to deliver orders to homes instead of using a dedicated warehouse or fulfillment center. For the first time, the study incorporated the possibility of fulfillment attempts at stores to fail and identified how such retailers can adopt a policy that leads to significant savings when these effects are considered.

Conducted by researchers at Carnegie Mellon University (CMU) and Onera, Inc., the study is published in Manufacturing & Service Operations Management.

“The rising trend in e-commerce has been accelerated by the COVID-19 pandemic, with online sales jumping from 11.8 percent in the first quarter of 2020 to 16.1 percent in the second quarter,” says Sagnik Das, a former Ph.D. Candidate in Operations Research at CMU’s Tepper School of Business, who led the study. “In omnichannel fulfillment, retailers attempt to minimize costs while fulfilling orders within acceptable time periods.”

Das and his colleagues focused on single-item orders. Typically, online orders are sent to a favorable sequence of locations to be filled in order. Failed trials (i.e., when orders are not filled) are sent to stores later in the order for further attempts until the process reaches a time limit.

“The problem of multistage order fulfillment is an interplay of pick failure — that is, the likelihood that orders will not be filled due to unavailability — at the stores where they may be shipped from, walk-in demand at the stores, and associated shipping costs,” explains R. Ravi, Andris A. Zoltners Professor of Business, and of Operations Research and Computer Science, at CMU’s Tepper School of Business, who co-authored the study.

As stores become an integral part of retailers’ fulfillment strategy in omnichannel ship-from-store programs, the high rate of pick failures at stores becomes a considerable factor in fulfillment costs. While warehouses are built for efficiency in picking, packing, and shipping items, pick failures are much higher in physical stores that are not designed for these purposes for several reasons (e.g., customers moving inventory without tracking, delivery receiving and recording errors, issues with labeling, theft).

Researchers modeled the problem as one of sequencing the stores from which an attempt is made to pick based on anticipated pick failure and ship an order in the most cost-effective way over several stages. To identify the best solution to the fulfillment problem, they modeled pick-failure probabilities as a function of current inventory positions and the result of other online order fulfillment trials.

The study used data on actual orders from several top U.S. retailers that worked with an e-commerce solutions provider to optimize their fulfillment strategies. Researchers proposed three order fulfillment models: one in which physical and online demand were both sparse, another in which physical demand was dense, and another in which both demands were dense. They extended the third model to also incorporate order acceptance decisions along with sequencing the stores from where they are filled once accepted.

By enabling retailers to incorporate the probability of pick failure in their order management systems for ship-from-store programs, the study’s proposed online order-acceptance policies saved omnichannel retailers as much as 22 percent. Specifically, they identified the optimal sequence of stores to try the accepted orders to minimize costs; one of the policies also uses these downstream costs to determine when to shut off the online channel for selling certain items based on current inventory availability levels.

“Our study demonstrates that modeling pick failures along with their interaction with selecting and shipping costs is an important component in optimizing ship-from-store fulfillment costs for large retailers,” says Srinath Sridhar, Chief Technology Officer at Onera, Inc., who co-authored the study.

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Choosing a lucky CEO means bad luck for the hiring company

Sometimes CEOs happen to attain outstanding performance thanks to events beyond their control. Firms that subsequently hire them pay them more and experience declining results, according to a study.

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Seneca, the Roman stoic philosopher, wrote that “luck does not exist.” Modern managerial studies take the liberty of disagreeing. Luck exists in the form of events that are beyond the control of CEOs and firms alike. Movements in oil prices and the business cycle (e.g., variations in GDP growth, and employment rate) that boost the market value of firms are a couple of examples.

A recent study by Mario Daniele Amore (Bocconi University, Milan) and Sebastian Schwenen (Technical University of Munich) found that choosing a lucky CEO means bad luck for the hiring company.

Good luck allows CEOs to “shine” in the labor market, making them more likely to leave their firm. “The hiring companies, though, are not perfectly able to separate out luck from task performance in their candidate pool,” Prof. Amore explained. “Therefore, lucky CEOs are likely to possess greater bargaining power vis-a-vis new firms’ shareholders, and thus gain benefits in the form of higher compensation and more attractive job assignments.”

Using a sample of S&P 1,500 US firms from 1992 to 2018, the authors found a positive association between a CEO’s luck at the departing firm and the level of pay at the new firm. Specifically, this larger pay is mostly made of non-cash compensation items like stocks awards and options, rather than salary and bonus. More interestingly, lucky CEOs were observed to move more swiftly to new firms and to have a shorter time-spell between CEO jobs.

Authors also observed that the increase in lucky CEOs’ bargaining power especially occurs in less competitive industries.

Unfortunately, incoming CEOs’ luck is also associated with a subsequent decline in the performance of the hiring firms. In particular, the performance of firms that hired low-luck CEOs gradually improves, whereas the performance of firms that hired high-luck CEOs experiences a moderate decline.

What is worse, luck may induce an attribution bias: high-luck CEOs, or the boards that hire them, misattribute luck-driven performance to observed individual actions, with the consequence that lucky CEOs will likely implement at the hiring firm the same corporate investment policies they implemented in their former companies, irrespective of their real effectiveness.

“Luck increases the attractiveness of CEOs in the managerial labor market of less competitive industries, bringing about higher bargaining power of lucky CEOs to transit swiftly and earn more. Nevertheless, appointing a lucky CEO is associated with poorer company performance and slower growth,” Professor Amore concluded.

Mario Daniele Amore and Sebastian Schwenen wrote “Hiring Lucky CEOs”, which was published in The Journal of Law, Economics, and Organization.

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Purpose beyond profit: How brands can benefit consumer well-being

I a brand adequately addresses moderating factors, the potential benefits to consumers and marketers are considerable. These factors include consumer trust, brand authenticity, brand credibility, commitment to purpose, consumer-value congruence, and brand-purpose proximity.

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Researchers from The Wharton School of the University of Pennsylvania and the Owen Graduate School of Management at Vanderbilt University published a new paper in the Journal of Consumer Psychology that offers fresh insights into “brand purpose” and its potential benefits to consumers.

The article, “Conceptualizing brand purpose and considering its implications for consumer eudaimonic well-being,” is authored by Patti Williams, Jennifer Edson Escalas, and Andrew Morningstar.

In response to industry reports, apparent consumer demand, and high-profile calls from top executives including BlackRock Chairman and CEO Larry Fink, brands have publicly begun pursuing purpose beyond profit. Brands in a wide variety of categories have sought to define, articulate, communicate, and act according to their “brand purpose.” 

The authors define brand purpose as a brand’s long-term aim central to “identity, meaning structure and strategy” that leads to productive engagement with some aspect of the world beyond profit.  

This research team explores the different types of well-being consumers may experience by engaging with brands they believe reflect their own values. Specifically, they focus on eudaimonia, a feeling of fulfillment resulting from living a meaningful life, contributing meaningfully to society, and acting in alignment with moral virtues.

Their framework cites five mediating factors that affect the relationship between brand purpose and consumer well-being: consumer purpose, meaning and significance, self-acceptance/achievement of true self, positive relationships, and other-praising emotions.  

The article suggests that, if a brand adequately addresses moderating factors, the potential benefits to consumers and marketers are considerable. These factors include consumer trust, brand authenticity, brand credibility, commitment to purpose, consumer-value congruence, and brand-purpose proximity.

While consumers may gain a vital sense of well-being; marketers, may secure positive brand judgements, brand loyalty, and brand evangelism.

“The ultimate goal of our review,” the authors write, “is to guide future consumer psychology research into brand purpose, a concept that we believe may have a transformative impact on business, consumers, and society.

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