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Thesis - Exploring the Effects of Herding and Word of Mouth on Purchase Decisions in an Online Environment

Thesis - Exploring the Effects of Herding and Word of Mouth on Purchase Decisions in an Online Environment

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Published by ovandam
This study aimed at exploring in what way consumer purchase decisions are being influenced by online herding and eWOM effects. These effects occur when consumers, in an online environment, are confronted with the articulation of preceding customers’ or expert experiences. Factors responsible for online herding effects are sales volume communication or number of consumer reviews. EWOM factors incorporated in this study are consumer and expert review valence. A multinomial discrete choice experiment with 12 choice tasks of four alternatives was performed among a sample (N=242) of internet users. The attribute utility levels were estimated by a Multinomial Logit Model (MNL). The results showed that all incorporated factors significantly influenced the simulated purchase decisions. Whereas the eWOM factors and especially consumer review valence where the most effective factors to both positively or negatively influence the expected value of a good. Negative consumer review valence showed to diminish the herding effect, indicating a bad product or service experience. The overall effect of herding and eWOM factors were stronger for search goods. Product familiarity showed to have no significant impact. These results are explained by the reasoning that the valuing of experience goods is relative subjective and based on personal beliefs, therefore the interpretation of these reviews are nuanced by consumers. Under the assumption that the construct for familiarity was valid as a proxy for product knowledge, product familiarity did not show a moderating effect since the factors included did not contain product (attribute) information. Consequently these factors can be considered as a general class of product information that require no prior product knowledge to value it.
This study aimed at exploring in what way consumer purchase decisions are being influenced by online herding and eWOM effects. These effects occur when consumers, in an online environment, are confronted with the articulation of preceding customers’ or expert experiences. Factors responsible for online herding effects are sales volume communication or number of consumer reviews. EWOM factors incorporated in this study are consumer and expert review valence. A multinomial discrete choice experiment with 12 choice tasks of four alternatives was performed among a sample (N=242) of internet users. The attribute utility levels were estimated by a Multinomial Logit Model (MNL). The results showed that all incorporated factors significantly influenced the simulated purchase decisions. Whereas the eWOM factors and especially consumer review valence where the most effective factors to both positively or negatively influence the expected value of a good. Negative consumer review valence showed to diminish the herding effect, indicating a bad product or service experience. The overall effect of herding and eWOM factors were stronger for search goods. Product familiarity showed to have no significant impact. These results are explained by the reasoning that the valuing of experience goods is relative subjective and based on personal beliefs, therefore the interpretation of these reviews are nuanced by consumers. Under the assumption that the construct for familiarity was valid as a proxy for product knowledge, product familiarity did not show a moderating effect since the factors included did not contain product (attribute) information. Consequently these factors can be considered as a general class of product information that require no prior product knowledge to value it.

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Published by: ovandam on Mar 24, 2010
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01/13/2013

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Exploring
 
the
 
effects
 
of 
 
herding
 
and
 
word
 
of 
 
mouth
 
on
 
purchase
 
decisions
 
in
 
an
 
online
 
environment 
 
Master’s
 
Thesis
 
Erasmus
 
School
 
of 
 
Economics
 
Master
 
Marketing
 
 
Economics
 
&
 
Business
 
Author: Olrik van Dam MscStudent number: 266771Supervisor: Dr. Bas Donkers
 
Exploring
 
the
 
effects
 
of 
 
herding
 
and
 
word
 
of 
 
mouth
 
on
 
purchase
 
decisions
 
in
 
an
 
online
 
environment
 
Abstract
 
This
 
study
 
aimed
 
at
 
exploring
 
in
 
what
 
way
 
consumer
 
purchase
 
decisions
 
are
 
being
 
influenced
 
by
 
online
 
herding
 
and
 
eWOM
 
effects.
 
These
 
effects
 
occur
 
when
 
consumers,
 
in
 
an
 
online
 
environment,
 
are
 
confronted
 
with
 
the
 
articulation
 
of 
 
preceding
 
customers’
 
or
 
expert
 
experiences.
 
Factors
 
responsible
 
for
 
online
 
herding
 
effects
 
are
 
sales
 
volume
 
communication
 
or
 
number
 
of 
 
consumer
 
reviews.
 
EWOM
 
factors
 
incorporated
 
in
 
this
 
study
 
are
 
consumer
 
and
 
expert
 
review
 
valence.
 
A
 
multinomial
 
discrete
 
choice
 
experiment
 
with
 
12
 
choice
 
tasks
 
of 
 
four
 
alternatives
 
was
 
performed
 
among
 
a
 
sample
 
(N=242)
 
of 
 
internet
 
users.
 
The
 
attribute
 
utility
 
levels
 
were
 
estimated
 
by
 
a
 
Multinomial
 
Logit
 
Model
 
(MNL).
 
The
 
results
 
showed
 
that
 
all
 
incorporated
 
factors
 
significantly
 
influenced
 
the
 
simulated
 
purchase
 
decisions.
 
Whereas
 
the
 
eWOM
 
factors
 
and
 
especially
 
consumer
 
review
 
valence
 
where
 
the
 
most
 
effective
 
factors
 
to
 
both
 
positively
 
or
 
negatively
 
influence
 
the
 
expected
 
value
 
of 
 
a
 
good.
 
Negative
 
consumer
 
review
 
valence
 
showed
 
to
 
diminish
 
the
 
herding
 
effect,
 
indicating
 
a
 
bad
 
product
 
or
 
service
 
experience.
 
The
 
overall
 
effect
 
of 
 
herding
 
and
 
eWOM
 
factors
 
were
 
stronger
 
for
 
search
 
goods.
 
Product
 
familiarity
 
showed
 
to
 
have
 
no
 
significant
 
impact.
 
These
 
results
 
are
 
explained
 
by
 
the
 
reasoning
 
that
 
the
 
valuing
 
of 
 
experience
 
goods
 
is
 
relative
 
subjective
 
and
 
based
 
on
 
personal
 
beliefs,
 
therefore
 
the
 
interpretation
 
of 
 
these
 
reviews
 
are
 
nuanced
 
by
 
consumers.
 
Under
 
the
 
assumption
 
that
 
the
 
construct
 
for
 
familiarity
 
was
 
valid
 
as
 
a
 
proxy
 
for
 
product
 
knowledge,
 
product
 
familiarity
 
did
 
not
 
show
 
a
 
moderating
 
effect
 
since
 
the
 
factors
 
included
 
did
 
not
 
contain
 
product
 
(attribute)
 
information.
 
Consequently
 
these
 
factors
 
can
 
be
 
considered
 
as
 
a
 
general
 
class
 
of 
 
product
 
information
 
that
 
require
 
no
 
prior
 
product
 
knowledge
 
to
 
value
 
it.
 
Keywords:
 
Online
 
Herding,
 
eWOM,
 
Discrete
 
Choice
 
Experiment,
 
Online
 
Reputation
 
Page
 
i
 
 
Exploring
 
the
 
effects
 
of 
 
herding
 
and
 
word
 
of 
 
mouth
 
on
 
purchase
 
decisions
 
in
 
an
 
online
 
environment
 
Page
 
ii
 
Imitation
 
is
 
natural 
 
to
 
man
 
 from
 
childhood,
 
one
 
o
 f 
 
his
 
advantages
 
over
 
the
 
lower 
 
animals
 
being
 
this,
 
that 
 
he
 
is
 
the
 
most 
 
imitative
 
creature
 
thein
 
world.
 
 
Aristotle
Greek philosopher (384 BC – 322 BC)
When
 
 people
 
are
 
 free
 
to
 
do
 
as
 
they 
 
 please,
 
they 
 
usually 
 
im ait e
 
each
 
other.
 
 
Eric Hoffer
American Social writer / philosopher (July 25
th
1902 – 1983)

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