The heterogeneous effect of WOM on product sales: why the effect of WOM valence is mixed?

Abstract

Purpose - Previous literature on WOM has consistent findings on the positive and significant effect of WOM volume on product sales, but the literature on WOM valence has been mixed. In this study, the authors aim to explain the reason for the mixed effect of WOM valence on product sales by considering heterogeneous characteristics of products, especially in the movie market, by segmenting products into mainstream and non-mainstream movies. Design/methodology/approach - This study uses empirical data from the motion picture industry, such as box office revenue, WOM volume and valence, and other variables of movie characteristics. The hypothesis is tested using OLS and panel data analysis in econometric methods. Findings - The authors find a significant effect of WOM valence on box office revenue only in the case of non-mainstream movies, which have relatively smaller marketing budgets than mainstream movies. The findings suggest that as marketing communication channels become more diverse, with larger marketing budgets, the effect of online WOM valence on product sales can be diluted. In addition, it is found that the effect of WOM volume on box office revenue is greater for mainstream movies, suggesting that consumers build higher credibility on products with larger sales or WOM volume, especially for experience goods with uncertain quality. Practical implications - The findings explain the weak relationship between WOM valence and product sales, which has been controversial in the WOM literature, and broaden the understanding of the effect of WOM on product sales. Originality/value - The relationship between WOM valence and sales and, consequently, the revenue of a good has not been clearly understood, considering the heterogeneous characteristics of consumers in previous literature. In this study, it is found that WOM volume and valence have different effects on product sales, corresponding to differences in product category. The findings suggest a reason for the weak relationship between WOM valence and product sales, which has been controversial in the WOM literature.