How to influence my customers?
The impact of electronic market design
by Nan HU
| Speaker: |  |
Date: Time: Venue: |
23 November 2007 (Friday)
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Nan HU |
We look forward to seeing you at this research seminar. |
Abstract
At this seminar, we will investigate the strategic decisions of online vendors for offering different mechanism, such as sampling and online reviews of information products, to increase their online sales. Focusing on measuring the effectiveness of electronic market design (offering reviews, sampling, or both), we seek answers for the following research questions 1) whether online retailers should offer sampling for their experience goods, such as music CDs; 2) under what circumstance is the offering of a product or experience sample more important than societal reviews; and 3) If an online media content provider does decide to offer sampling of its experience goods, what will be the optimal length of the sampling.
Our model shows that online vendors can increase their online sales by providing sampling options for their experience goods. However, their net income might not increase. Our empirical study shows that online markets behave as communication markets, and consumers might learn product quality information both passively (reading online reviews) and actively but subjectively (listening to music sampling). Using data from Amazon and Youtube, first we show that sampling alone is a strong product quality signal that might reduce the product uncertainty after controlling for the halo effect. In general, products with a sampling option enjoy a higher conversion rate (which leads to better sales) than those without sampling because sampling decreases the uncertainty of consuming experience goods. Second, the impact of online reviews on sales conversion is lower for experience goods with a sampling option than for those without. When the uncertainty of the societal reviews is higher, sampling plays a more important role because it mitigates such uncertainty introduced by online reviews. Fourth, the relation between sales and the length of sampling is non-linear. At the initial stage, the longer the length of the sampling is, the higher the sales will be. However, after the length of the sampling reaches a given point (1 minute for entertain types of videos, and 4 minutes for music videos), offering a longer sampling begins to hurt the sales. The optimal length of the sampling depends on the nature of the products.
Biography
Nan HU is an Assistant Professor of Information Systems at the Singapore Management University. He received his Ph.D. in management information systems from the University of Texas at Dallas. His research interests include intangible valuation of IT spending, IT human capital, security investment, and marketing impact of online word-of-mouth communities.