W. P. Carey professor finds consumer reviews can help buyers' bargaining power
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Online reviews have transformed how we make large and small decisions, from purchasing a car to seeking a job to choosing a local restaurant. In addition to collecting information, this resource has created a new benefit for consumers, according to an Arizona State University professor.
These reviews contain price and discount information that consumers can leverage to negotiate a lower price in many settings ranging from goods to services, says Jisu Cao, an assistant professor in the Department of Information Systems at ASU's W. P. Carey School of Business.
“When the price is negotiable, consumers read online reviews not only to evaluate the quality and fit of a product to their needs, but also to assess their bargaining power to negotiate a lower price,” Cao wrote in the abstract of a new journal article, “Understanding the Impact of Reviews on Consumer Product Choices Under Negotiated Pricing.”
Cao’s research focuses on user-generated content and the platform economy. She recently spoke to ASU News about how consumers can use online reviews to negotiate better deals and how sellers can craft more effective marketing strategies by leveraging these reviews.
Editor's note: Responses have been edited for length and/or clarity.
Question: What compelled you to write this piece?
Answer: At the time, I was shopping for a car and turned to the internet for information. I found online reviews were a gold mine for shoppers like me. People were honest about their purchases, sharing negative and positive experiences. They were also willing to share the product’s final price and bargaining strategies to benefit future consumers. This motivates me to study the economic benefits of this shared information.
Q: What was this paper about, and what were some interesting findings or surprises?
A: In this paper, we look at the economic value of online reviews. We focus on a particular setting where consumers can negotiate prices with sellers. One of the biggest surprises was online reviews can affect a consumer’s bargaining power. Consumers are savvy and can take advantage of the discount and price information contained in online reviews. This information helps consumers understand their bargaining power with the seller and achieve a desirable price in the negotiation.
Q: There’s so much information available to consumers and sellers on the internet about products and prices. Who ultimately benefits?
A: In this market, consumers and sellers are engaged in a bargaining process, so who will benefit depends on the information each side can leverage. For example, if you’re a seller whose product has a high-star rating, you can use this information to justify higher prices. Our research shows that if a seller improves a product’s rating by half a star, the profits can increase by around one-third. In this case, the information benefits the seller.
Q: What kinds of actions should sellers take to improve their profits?
A: Sellers should carefully manage their online reputations. For example, one popular selling strategy is to offer consumers price discounts in exchange for five-star reviews. However, our study suggests this strategy can backfire. When consumers share these discount details in their reviews, future buyers can leverage this information to negotiate lower prices, potentially reducing the seller’s profits.
Q: Your article also contains information about how consumers can negotiate prices through social media. Where should they look for that information?
A: If your goal is to negotiate a lower price, not all social media information is equally valuable. Focus on historical prices shared by other consumers and any discount details mentioned in the reviews. Low ratings can also be useful, as they often highlight product flaws or poor experiences. You can leverage these points during negotiations with the sellers.
Q: What is the next area of study you will look at in this field?
A: This paper focuses on the economic value of information, which I plan to continue exploring in future research. I’m fascinated by how information shared online can create value for individuals in various aspects of their lives.
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