In this thesis, I address a growing trend in how consumers obtain information prior to making their online purchasing decisions. Specifically, I investigate the relationship between online word-of-mouth (WOM; customer reviews and ratings) and sales, measured by Amazon.com “ranks”, for different product categories. I collect daily data from Amazon.com for twenty products in ten categories from December 8, 2011 to February 29, 2012 in an effort to capture changes in online WOM and how it impacts sales. I expand on the traditional metrics used to measure online WOM and mimic how consumers use review information on Amazon.com to make their purchases there. As part of my approach, I take into account the endogenous nature of reviews via instrumental variables. Results of this thesis show that in the Electronics category (1) the number of reviews significantly impact its rank, (2) a two-star rating (compared to a one-star rating) versus a four-star rating (compared to a one-star rating) has a greater impact on its rank, (3) Amazon’s Facebook.com “Likes” feature significantly impacts rank in Books, Electronics and Music, and (4) the impact of online WOM is significant for experience goods, but not for search goods. My findings suggest that online WOM metrics impact consumer purchase decisions through awareness and persuasion. Moreover, it underlines the emerging role of social media in sales outcomes. From a managerial standpoint, these findings suggest that businesses should use ratings, reviews, and social media to build awareness about their products and influence purchase decisions. Future research in online WOM and sales (or rank) outcomes for product categories should control for advertising and product heterogeneity within categories, as well as incorporate social media metrics, review text and length.
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Food and Business Economics
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Rutgers University Electronic Theses and Dissertations
Rutgers University. Graduate School - New Brunswick
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