Aleksei Smirnov, Assistant Professor, HSE University Faculty of Economic Sciences, and Egor Starkov, Assistant Professor, University of Copenhagen, have constructed a mathematical model that explains the reason it is advantageous for sellers to not delete negative reviews of their products. A research detailing this conclusion was accepted for publication from The American Economic Journal: Microeconomics.
Empirical studies have indicated that consumers are more likely to buy a product using a score slightly below a perfect one as opposed to an ideal one. Using game theory, the researchers analyzed how negative reviews affect sales.
The researchers’ model, which they presented in their paper ‘Bad News Turned Good: Reversal under Censorship’, involves two types of participants: vendors, who understand the real quality of the goods they are selling and may selectively publish testimonials about it, and buyers, who don’t understand a product’s quality and can be categorized as ‘naïve’ or ‘rational’. Rational buyers utilize all available information to find out the quality of a product, while naïve buyers tend to take product reviews at face value and do not make any further inference.
‘If there were only naïve consumers in the market, sellers would leave only perfect reviews, because the naïve consumers believe what they read and there is no reason to disenchant them with negative reviews,’ Aleksei Smirnov clarifies.
However, in fact there are both naïve and rational customers in the current market, and the situation is as follows. Good reviews are perceived favorably by everybody. Bad reviews are poor for its naïve consumers, but for its rational consumers these reviews really increase their confidence in the quality of a product. Why? Because, the authors say, negative reviews weaken sales among naïve consumers. Therefore, only a vendor of a premium excellent product will be confident enough to publish it they can be sure that in the future their product will garner favorable feedback, and earnings one of fair customers will compensate for any losses one of naïve consumers.
Therefore, negative reviews become a favorable sign to fair customers, And, by bringing more fair customers, sellers boost sales.
Examples where a seller is not only unsure about negative reviews but, alternatively, flaunts it, are available literally on the road. For example, roadside advertising billboards for digitec, the biggest Electronics retailer in Switzerland, feature negative reviews of their merchandise. The authors of the study don’t have information on how this advertising campaign has affected digitec’s profits, but given that the billboards have been in existence for years, it could be assumed that this advertising move has been quite profitable.
Source: https://www.hse.ru/en/