The Economic Value of Online Reviews

Updated: Apr 18 2015

Download Here

  • Forthcoming at Marketing Science, 2015
  • Co-authored with Hai Che, Tat Y. Chan and Xianghua Lu

dianping
yelp

Abstract

This paper investigates the economic value of online reviews for consumers and restaurants. We use a dataset from Dianping.com, a leading Chinese website providing user-generated reviews, to study how consumers learn from reading online reviews the quality and cost of dining at restaurants. We propose a learning model that has three novel features: (1) different reviews offer different informational value to different types of consumers; (2) consumers learn own preferences, and not the distribution of preferences among the entire population, for multiple product attributes; and (3) consumers update not only the expectation but also the variance of their preferences. Based on estimation results, we conduct a series of counterfactual experiments and find that the value from Dianping is about 7 CNY for each user, and about 8.6 CNY from each user for the reviewed restaurants in this study. The majority of the value comes from reviews on the quality of restaurants, and contextual comments are more valuable than numerical ratings in reviews.

Keywords: Online Reviews, User-generated Content, Consumer Choice under Uncertainty, Learning, Economic Value to Consumer and Firm

Measuring the Lifetime Value of Customers Acquired from Google Search Advertising

Updated: Apr 16 2015

Download Here

  • Co-authored with Tat Chan and Ying Xie.
  • Marketing Science 30(5) 837-850.
  • The paper won the "Olin Award" in 2012.

Abstract

Our main objective in this paper is to measure the value of customers acquired from Google search advertising accounting for two factors that have been overlooked in the conventional method widely adopted in the industry: (1) the spillover effect of search advertising on customer acquisition and sales in off-line channels and (2) the lifetime value of acquired customers. By merging Web traffic and sales data from a small-sized U.S. firm, we create an individual customer-level panel that tracks all repeated purchases, both online and off-line, and tracks whether or not these purchases were referred from Google search advertising.

To estimate the customer lifetime value, we apply the methodology in the customer relationship management literature by developing an integrated model of customer lifetime, transaction rate, and gross profit margin, allowing for individual heterogeneity and a full correlation of the three processes. Results show that customers acquired through Google search advertising in our data have a higher transaction rate than customers acquired from other channels. After accounting for future purchases and spillover to off-line channels, the calculated value of new customers using our approach is much higher than the value obtained using conventional method. The approach used in our study provides a practical framework for firms to evaluate the long-term profit impact of their search advertising investment in a multichannel setting.

Keywords: Customer Lifetime Value, Mulitple-channel Shopping, Customer Acquisition, Sponsored Search Advertising

Hollywood Movies in China: Which are Shown in Theaters and How Large is Their Audience?

Updated: Apr 16 2015
  • Analysis in progress.
  • Co-authored with Jason Ho and Charles Weinberg.

Abstract

China is the world’s second largest theatrical movie market, yet only about 10% of all movies released by Hollywood studios each year are shown in China due to government restrictions. Using a specially constructed extensive data base of movies having a theatrical release in China over recent years, supplemented by a broader data base of movies released elsewhere, we develop and estimate a model to help understand the characteristics of movies that are likely to be approved by the Chinese government for theatrical release in China. Understanding the approval process is particularly challenging, as the objective function concerning acceptance of movies for theatrical release in China has not been fully revealed. Moreover, movie contracts can either be on a revenue sharing (the current quota is 34 movies each year) or on a flat-fee basis (no pre-set quota). For example, “Thor: The Dark World” was shown under a revenue sharing contract and “Despicable Me 2” was shown under a flat fee contract, although both had similar levels of theatrical revenues (approximately US$50 million) in China. Once accepted for showing in China, a movie’s release date can be close to that of the US release or much delayed. Recognizing that only a limited number of Hollywood movies are shown in China and that release dates vary, we then investigate movie and other characteristics that are associated with box office performance in China.

Keywords: Movie Market, Boxoffice Performance