Clash of reputation and status in online reviews

Abstract

This study extends the heterogeneous effectiveness of market signals by examining when textual sentiments have the most influence on purchasing decisions. Specifically, we argue that reputation and status, two distinct theoretical constructs, which are difficult to disentangle in practice, may influence the effectiveness of textual sentiments on customers' decision making process in opposite directions. Reputation refers to the quality trajectory for a product whereas status sets a societal expectation from a product based on the social standing of that product among its peers. In this study, we examine reputation and status as contingencies that affect how electronic word of mouth (e-WoM) is perceived by customers in the context of review platform. To demonstrate the impact of textual sentiments and the moderation effects of reputation and status, we used an online platform to crawl review and reservation data at the same time of everyday over a period of 100 days on 310 hotels located in New York City. We found that customers are more sensitive to the sentiment of textual reviews on hotels of high status but less receptive when reviews are on hotels of high reputation. Our robustness tests and two identification strategies are all consistent with these findings. This research offers a strategic guideline to businesses and platforms in terms of how much they should rely on e-WoM, contingent upon their reputation and status.