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Impact of Online Customer Reviews on Sales Outcomes: An Empirical Study

Based on Prospect Theory

Article  in  The Review of Socionetwork Strategies · August 2018

DOI: 10.1007/s12626-018-0022-9

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The Review of Socionetwork Strategies (2018) 12:135–151
https://doi.org/10.1007/s12626-018-0022-9

ARTICLE

Impact of Online Customer Reviews on Sales Outcomes:

An Empirical Study Based on Prospect Theory

Zhen Li1   · Aoi Shimizu2

Received: 29 May 2018 / Accepted: 19 July 2018 / Published online: 20 August 2018
© Springer Japan KK, part of Springer Nature 2018

Abstract
This study examines the influence of the valence of online customer reviews on sales
outcomes based on prospect theory. Numerous studies have revealed the importance
of customer reviews in online marketing. However, only few studies have explored
the impact of online customer reviews on sales outcomes in the dynamic process.
Prior studies in behavioral economics literature have indicated that people differ‑
ently value gains and losses and that losses have more emotional impact than an
equivalent amount of gains. This study verifies whether prospect theory applies to
the relation between online customer reviews and sales outcomes. Relevant data
were collected from Amazon.co.jp, and three statistical models were employed to
investigate the relation between the two factors. Major findings confirm that nega‑
tive customer reviews considerably impact online sales than positive reviews. Fur‑
thermore, the findings indicate that the marginal effects of positive and negative
reviews decrease with the increase in their volume. The results of this study will
enable marketers to compare the relative sales effects of different types of customer
reviews and improve the effectiveness of customer service management.

Keywords  Online customer reviews · Sales outcomes · Internet shopping · Prospect

theory · Nonlinear estimation · Web crawling

Aoi Shimizu: Graduated in September 25, 2017

* Zhen Li
li@toyo.com
1
Department of Marketing, Faculty of Business Administration, Toyo University, 5‑28‑20
Hakusan, Bunkyo‑ku, Tokyo 112‑8606, Japan
2
Faculty of Business Administration, Toyo University, Tokyo, Japan

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 136 The Review of Socionetwork Strategies (2018) 12:135–151

1 Introduction

An online customer review is an evaluation of a product or service by a customer

who has purchased and used or had an experience with the product or service and
submitted customer feedback on e-commerce and online shopping websites [11,
19, 28]. Many marketers and scholars have considered online customer reviews
as an important source of product information that influences human behavior.
Moreover, they have revealed that online customer reviews can help other con‑
sumers to understand more about the product or service [12, 41]. Prior studies
have indicated that online customer reviews considerably impact consumer pur‑
chase decisions [8, 14, 16, 20, 41]. However, only few studies have explored the
impact of online customer reviews on consumer purchase behavior or sales out‑
comes in the dynamic process [27]. Thus, future studies must analyze the relation
between the valence of online customer reviews and sales outcomes.
This study examines the dynamic effects of online customer reviews on sales
outcomes. The literature on online shopping has documented that online customer
reviews can significantly promote consumers’ purchasing decisions [8, 16, 41].
Furthermore, prior studies have revealed that the volume of customer reviews is
positively correlated with consumer awareness about the product [7, 19, 27]. In
addition, in terms of valence, numerous studies have suggested that positive feed‑
back is positively related to consumer purchase decisions, whereas negative feed‑
back is negatively related to consumer purchase decisions [4, 36, 38]. Moreover,
negative information is stronger and more influential than positive information [2,
16]. However, most previous studies have focused on individual decision mak‑
ing from the perspective of consumer psychology, with little reference to aggre‑
gate sales outcomes from the perspective of retailing. In addition, existing stud‑
ies have found that the preferences denoted in review information directly affect
consumers’ purchase intention [1, 4]. However, other studies have suggested that
the influences of online reviews are equivocal [7, 14] or context-dependent [26],
thereby producing mixed results. The relevant literature has explained that this is
because online reviews merely represent consumer preferences, which may pre‑
dict product sales, but have little influence on consumers’ individual decisions
[41].
A traditional approach to investigate the effects of the valence of online cus‑
tomer reviews on purchase intention is to include the number of positive and neg‑
ative reviews in a response model and estimate the corresponding coefficients.
However, this approach has not been applied to the situation, wherein the vol‑
ume of customer reviews nonlinearly affects behavioral outcomes. Simple linear
estimation may produce biased estimates as seen in the mixed results described
above. Therefore, this study employs aggregated sales outcomes instead of indi‑
vidual purchase intention. It examines whether a nonlinear relation exists between
online customer reviews and sales outcomes, which has not been confirmed in the
literature.
Prior studies in behavioral economics literature have demonstrated that people
differently value gains and losses. In addition, these studies have indicated that a

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The Review of Socionetwork Strategies (2018) 12:135–151 137

potential loss considerably impacts consumer perception than an equivalent gain,

because the value function for losses is steeper than that for gains [16, 22]. In
addition, the value function in the theory is confirmed to be concave and con‑
vex rather than linear [21, 32]. Building on this idea, this study verifies whether
prospect theory applies to the relation between online customer reviews and sales
outcomes.
The objectives of this study are twofold. First, this study investigates the impact
of online customer reviews on sales outcomes. It uses objective data to clarify
whether negative reviews are more influential than positive reviews. Second, this
study obtains an accurate assessment of the nonlinear effects of positive and nega‑
tive reviews, if any, on sales outcomes based on prospect theory. In this study, we
introduce three statistical models—general linear model, quadratic function model,
and log-linear model—to determine the relation between online customer reviews
and sales outcomes and examine the dynamic impact of positive and negative
reviews on product sales outcomes. The data used in this study were extracted from
Amazon.co.jp. The main findings suggest that (1) positive reviews contribute to
sales outcomes, whereas negative reviews hinder sales; (2) negative reviews con‑
siderably impact sales outcomes than an otherwise equivalent volume of positive
reviews; and (3) the marginal effects of positive and negative reviews decrease with
the increase in their volume, which are consistent with prospect theory.
This study provides valuable insights not only for marketing academics, but also
for online retail practice. It analyzes the effects of online customer reviews on sales
level rather than on the individual level and explores the manner in which positive
and negative online reviews dynamically influence product sales results. Marketers
can understand the relative sales effects of different types of customer reviews and
improve the effectiveness of customer service and relation management by discover‑
ing the existence of a nonlinear relation between online customer reviews and sales
outcomes.
The remainder of the paper is structured as follows. Section  2 outlines the the‑
oretical foundations of prospect theory, reviews the literature related to the sales
effects of online customer reviews, and offers the corresponding hypotheses. Sec‑
tion 3 introduces the study design and data collection process. Section 4 estimates
the traditional linear model as a benchmark and elaborates the proposed approach.
Finally, Sect. 5 concludes the study with contributions, managerial implications, and
directions for further research.

2 Theory and Hypotheses

Prior studies concerning online customer reviews have mainly focused on their vol‑
ume and valence [9, 16, 20, 30, 40]. Existing studies have speculated that the use
of online customer reviews will significantly influence consumers’ purchasing deci‑
sions and ultimately improve sales. However, many studies have explored the effects
of customer reviews linearly and have obtained mixed estimation results [6, 20, 26].
Based on prospect theory, this study posits that a nonlinear relation exists between
reviews and sales and that the sales function of customer reviews is concave and

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 138 The Review of Socionetwork Strategies (2018) 12:135–151

convex. Therefore, this section first reviews the literature related to the volume and
valence of online customer reviews. This is followed by an introduction of prospect
theory. Thereafter, the section proposes the corresponding hypotheses.

2.1 Online Customer Reviews

The previous studies on online customer reviews have generally analyzed the vol‑
ume of reviews [26, 27], the valence of reviews [29, 37], or both [9, 35, 40]. Given
that the volume of reviews can be considered to be an important cue of product pop‑
ularity [10], this indicator is used as a proxy for the quantity of sales outcome avail‑
able to the consumer by increasing consumer awareness and reducing uncertainty
[7]. The finding needs to be determined further. From a macroscopic perspective,
numerous studies have considered that a huge volume of customer reviews increases
the reliability and persuasiveness of online word-of-mouth (eWOM) [23]. This can
enhance consumers’ awareness regarding the product and perceptions of its quality,
thereby generating higher sales [16]. This argument is also partially supported by
some empirical works [14, 27].
From a microscopic perspective, more recent studies have begun to shift their
focus to the valance of reviews [5, 16, 25, 34]. Most existing studies have considered
that valence contributes to consumer decision making by eliminating uncertainty
and avoiding risks, which is usually measured by product ratings and the context of
consumer reviews [24, 35]. Positive reviews typically increase consumers’ expected
quality and attitudes toward the product. In contrast, negative reviews unfavorably
impact product attitudes [16, 23, 27].
Interestingly, the empirical evidence regarding the effects of the valence of online
reviews on purchase decision making and sales are conflicted and inconclusive.
Chevalier and Mayzlin  [8] found that the valence of online reviews has a strong
impact on sales rank of books, and similar results for hotel bookings and movies are
also supported by Chen et al. [6], Ye et al. [37], and Gu et al. [20]. However, this
significant influence has not been observed by some other studies [14, 17]. In other
words, although prior research has provided significant insights, a consensus regard‑
ing how the valence of online customer reviews affects purchase decision and sales
outcomes have yet to emerge, implying the need for further exploration to make the
influence clear.
Given the aforementioned facts, this study proposes the following two sim‑
ple hypotheses concerning the influences of positive and negative online customer
reviews on sales outcomes.

H1: Positive customer review is positively correlated with sales outcomes.

H2: The existence of negative customer reviews decreases sales.

2.2 Prospect Theory

Studies have suggested that negative information is stronger, more influential,

more predictive, and more difficult to resist than positive information [2, 16, 31].

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The Review of Socionetwork Strategies (2018) 12:135–151 139

When extrapolated to online shopping, this finding can be interpreted as follows:

consumer purchase decisions are more easily influenced by negative information
than by positive information. This notion is derived from prospect theory, which
states that losses and gains are differently valued. Accordingly, individuals make
decisions based on the potential value of losses and gains rather than the final
outcome [22].
Prospect theory has significantly contributed to behavioral economics, since it
was proposed in the 1970s and developed in the 1990s as a psychologically more
accurate description of decision making compared with expected utility theory [22,
33]. It states that people differently value gains and losses and, as such, base their
decisions on perceived gains rather than on perceived losses. It posits that people
would make choices as expressed in terms of possible gains rather than possible
losses, i.e., they are loss-averse. Because individuals dislike losses more than equiv‑
alent gains, they are willing to take risks to avoid a loss. The use of this theoretical
framework partially explains why a potential loss has a greater impact on consumer
perceptions and decision making than an otherwise equivalent gain.
In addition, prospect theory describes the decision processes in two stages. In the
initial stage, people decide which outcomes to consider as equivalent, set a reference
point, and consider lesser outcomes as losses and greater ones as gains. This stage
aims to alleviate any framing effects [32]. In the subsequent evaluation stage, people
behave as if they would compute a value, based on the potential outcomes and their
respective probabilities, and choose the alternative having a higher value. Value
function in prospect theory represents the difference in utility achieved as a result
of a certain amount of gain or loss. The value function that passes through the refer‑
ence point is S-shaped, asymmetrical, and steeper for losses than that for gains, indi‑
cating that losses outweigh gains. This implies that the value function is normally
concave for gains (risk aversion) and commonly convex for losses (risk seeking).
Due to information asymmetry, consumers may face uncertainty as they perceive
risks and potential undesirable consequences in the online marketplace [13]. Online
reviews are deemed to be one of the most important tools that consumers use when
making purchase decisions as they help them understand how other buyers evaluate
the quality of the product or the service provided by the store [16, 24]. Applying
prospect theory to the context of online shopping, positive and negative online cus‑
tomer reviews can be regarded as perceived gains and losses. Building on this idea,
the value function of online reviews can be drawn as in Fig. 1.
In the figure, y1 , y′1 , and y′′1 represent the value or purchase intention when the
volume of positive reviews is x, 2x, and 3x, respectively, while y2 , y′2 , and y′′2 indicate
the purchase intention with commensurate negative reviews. According to prospect
theory, the following three relations can be obtained:
|y | < |y |
| 1| | 2|
|y� − y | < |y | & |y� − y | < |y |
| 1 1| | 1| | 2 2| | 2|
|y�� − y� | < |y� − y | & |y�� − y� | < |y� − y |.
| 1 1| | 1 1| | 2 1| | 2 2|

Based on such recognition, therefore, two hypotheses are offered as follows.

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 140 The Review of Socionetwork Strategies (2018) 12:135–151

Fig. 1  Extended framework
of prospect theory in online
shopping

H3: Compared with the effect of positive customer reviews, the effect of negative
reviews on sales outcomes is more influential.
H4: The marginal effects of online customer reviews decrease with the increase in
review volume.

All the aforementioned hypotheses will be tested in subsequent sections.

3 Method

This section describes the data collection process and introduces the measurement
of variables for the data analysis.

3.1 The Data

To verify the hypotheses above, data on online customer reviews and sales outcomes
were collected from Amazon.co.jp, which has the largest market share in Japan and
is the most representative B2C online platform. Acknowledging the presence of
information asymmetry and a high degree of homogeneous competition, three types
of products were emphasized: portable batteries, earphones, and pump shoes. These
products were chosen due to the variety of similar products and stability of its sales
without obvious seasonal fluctuations. A Python-based web crawler was developed
to retrieve the relevant data in June 2017, including online customer reviews and
sales outcomes for every target product on Amazon.co.jp. The data were extracted in

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The Review of Socionetwork Strategies (2018) 12:135–151 141

Table 1  Basic information concerning the product data

two continuous periods, t0 (June 15th) and t1 (June 30th), to control for the sequen‑
tial influence of customer reviews on sales outcomes. In the process of data match‑
ing, the collected two-period data were combined by the stock keeping unit (SKU).1
Sales outcomes in the previous period were used as a control variable to account for
various in and out of factors that may affect sales in the target period [39]. After the
matching process, complete data were obtained for 1916 target products’ data: 332
portable batteries, 371 earphones, and 1213 pump shoes.
Table  1 displays basic statistical information and some sample images of the
products collected in this study.

3.2 Variables

Based on the research objectives and theoretical framework constructed in the pre‑
ceding section, the influence of online customer reviews on sales outcomes was
mainly measured through three variables: (1) sales of each target product; (2) vol‑
ume of positive customer reviews; and (3) volume of negative customer reviews. All
variables for the entire study were measured as follows.

3.2.1 Explained variable

The explained variable is the sales outcome of each product. However, unlike other
e-market websites, such as eBay or Taobao, which indicate an exact monthly sales
volume to consumers, Amazon.co.jp provides only a sales rank based on the accu‑
mulated sales volume in the previous 2 weeks. According to the measurement
approach used in the prior research [9, 18, 20, 30], sales rank was used as a proxy
for sales outcome. Notably, the smaller the sales rank, the larger the sales volume.

3.2.2 Explanatory variables

The independent variables are the volumes of positive and negative online cus‑
tomer reviews. The exact numbers of positive and negative reviews were calcu‑
lated on the basis of the rating scores of overall accumulated customer reviews.

1
  A stock keeping unit (SKU) is a 6–8 character long alphanumeric code used to identify a product and
track its inventory. The SKU for each product and seller is a unique number.

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 142 The Review of Socionetwork Strategies (2018) 12:135–151

Fig. 2  Online review information on Amazon.co.jp

Online reviews with a rating greater than 4 were classified as positive reviews,
and those with a rating less than 2 were defined as negative reviews. User feed‑
back with a rating of 3 was considered to be a neutral review.

3.2.3 Control variables

Control variables are price, preceding sales rank, mean rating, cumulative num‑
ber of reviews, and product category. Price can be directly extracted, because it
is shown on the product webpage; as per the law of demand, price has an obvi‑
ous impact on sales outcomes. Preceding sales rank is collected in one previous
period. According to the theory of social influences, demand by a typical con‑
sumer is positively related to the quantity demanded by other consumers [3]. This
implies that the sales outcomes from online shopping are easily influenced by the
sales outcomes in the previous period; therefore, the data were extracted in two
continuous periods. Similar to the price, mean rating and cumulative number of
reviews are also easy to observe on the product webpage. These two indicators
were used as control variables to obtain an accurate assessment of the influence
of positive and negative online customer reviews on sales outcomes. Product cat‑
egory was used as a dummy variable to control for the sales effects from the char‑
acteristics of the product itself.
Figure 2 shows a sample product webpage used to retrieve the price and online
review information.

4 Estimations

To test the hypotheses proposed in Sect.  2, a simple general linear model is pre‑
sented as a benchmark for the proposed approach. This is followed by a quadratic
function model and a log-linear model to examine the dynamic impact of positive
and negative reviews on product sales outcomes, which is elaborated in this section.

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The Review of Socionetwork Strategies (2018) 12:135–151 143

Fig. 3  Plot of the correlation between reviews and sales

Table 2  Correlation coefficients between reviews and sales

4.1 General Linear Model

Before applying the statistical model to examine the impact of online customer reviews
on sales outcomes, a scatter plot is drawn to briefly confirm the correlation between
review valance and sales through the data collected from Amazon.co.jp (see Fig. 3).
Because it is difficult to draw the true ration between the number of positive and nega‑
tive reviews and sales outcome without considering the reviews cumulative number in
a two-dimensional plot, thus, we used the ratio as the simplification to indicate review
valance. Correlation coefficients appear in Table 2. The plot indicates that for all three
categories, the ratio of negative reviews for a given product item is positively correlated
with its sales rank. However, an accurate assessment of the influence of online cus‑
tomer reviews on sales is still not established, because other influential factors for sales
outcomes are not controlled for in the correlation analysis and the correlation coeffi‑
cient only represents the degree of linearity, we modeled the sales effect of online cus‑
tomer reviews subsequently.
A traditional model to assess the effects of online reviews on sales is to include
all relevant sales response variables while considering a linear relation between
reviews and sales. This simple model, called Model 1 in this study, was developed as
follows and used as a benchmark for subsequent analyses:
yi = 𝛽0 + 𝛽1 x1i,0 + 𝛽2 x2i,0 + 𝛾1 yi,0 + 𝛾2 pi,0 + 𝛾3 zi,0 + 𝜖i ,
where x1i,0 and x2i,0 denote the ratios of positive and negative reviews (hereinaf‑
ter, referred to as “positive ratio” and “negative ratio”) for item i in the first period
t0 , respectively; yi represents the sales rank for item i in the second period t1 ; and
yi,0 denotes the preceding sales rank in one previous period (i.e., t0 ). pi,0 and zi,0

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 144 The Review of Socionetwork Strategies (2018) 12:135–151

Table 3  Parameter estimates of general linear model

* p < 0.1 , ** p < 0.05 , ***p < 0.01

represent the natural logarithm of sales price and cumulative number of whole
reviews( in period
) t0 . The error term 𝜖i is assumed to be i.i.d. normally distributed,
𝜖i ∼ N 0, 𝜎 2  . To confirm whether negative reviews considerably impact sales out‑
comes over an equivalent volume of positive reviews, which is one of the objectives
of this study, we used the ratio as the relative number of reviews to intuitively repre‑
sents the condition of “equivalent volume.” In addition, we introduce the cumulative
volume of online customer reviews as a control variable to obtain robust relative
results. Note that simultaneous causality bias in this model can be excluded, because
the explanatory variables will not be influenced by the explained variable due to
time sequence.
In Model 1, parameters 𝛽1 and 𝛽2 indicate that the extent a one-unit increase in
the ratios of positive and negative reviews changes the expected value of sales rank
under the condition, while the price and cumulative number of reviews remains
unchanged. Because the model is linear, a one-unit change in reviews has the same
effect on sales. Table 3 reports the estimation results of Model 1. The results indi‑
cate that positive and negative customer reviews significantly impact sales and that
the directions of these effects are as expected. As shown in Table 3, for almost all
the three categories, negative reviews unfavorably impact sales rank, whereas posi‑
tive reviews significantly benefit sales outcomes. Thus, H1 and H2 are nearly sup‑
ported by Model 1.
H3 predicts that the effect of negative reviews on sales is more influential than
that of positive reviews. This hypothesis can be verified if the inequality 𝛽1 + 𝛽2 > 0
holds true. The F-test indicates that the results for all three categories are significant
at the 0.05 or 0.10 level (i.e., its 95 or 90% credible interval does not cover zero).2
Thus, the estimations in Model 1 support H3.
In H4, the marginal effects of positive and negative online customer reviews are
speculated to decrease with the increase in review volume. However, given the limi‑
tation caused by the nature of the linear model, another volume of online reviews

2
  F-statistics for the category of portable batteries, earphones, and pump shoes are
F(1,326) = 5.78 (p < 0.05) , F(1,365) = 3.26 (p < 0.10) , and F(1,1207) = 4.73 (p < 0.05).

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The Review of Socionetwork Strategies (2018) 12:135–151 145

Table 4  Parameter estimates of quadratic function model

*p < 0.1 , **p < 0.05 , *** p < 0.01

Table 5  F-test results for H1 and H2 in model 2

influences sales by the same amount regardless of the initial level of review volume.
This implies that the general linear model cannot provide any method to test H4.

4.2 Quadratic Function Model

To test the dynamic changing process of the marginal effects of online reviews, this
study proceeds to Model 2. In this model, the square of positive and negative ratios
is introduced as independent variables to make the model nonlinear. Model 2 is for‑
mulated as follows:

2 2
yi = 𝛽0 + 𝛽11 x1i,0 + 𝛽12 x1i,0 + 𝛽21 x2i,0 + 𝛽22 x2i,0 + 𝛾1 yi,0 + 𝛾2 pi,0 + 𝛾3 zi,0 + 𝜖i ,

where x1i,0
2
and x2i,0
2
denote the quadratic terms of positive and negative ratios of
online customer reviews, respectively, and other notations are the same as defined
previously. Compared with Model 1, the impacts of customer reviews on sales out‑
come also depend on the initial values in(Model)2. (Moreover, the marginal effects ) of
positive and negative ratios change from 𝛽1 , 𝛽2 to 𝛽11 + 2𝛽12 x1 , 𝛽21 + 2𝛽22 x2 .
Table 4 presents the estimation results of Model 2. The estimates of the param‑
eters 𝛽11 and 𝛽21 are significant for all the three categories, and the directions of these
effects are the same as in Model 1. In addition, the estimates of the parameters for
reviews squared (i.e., 𝛽12 , 𝛽22 ) are also significant, but the directions are contrary to
𝛽11 and 𝛽21 . Note that the key difference between models 1 and 2 is that the influence
of customer reviews on sales outcomes not only depends on the parameter of linear
terms (i.e., 𝛽12 , 𝛽22 ), but also depends on the quadratic terms (i.e., x1i
2 2
, x2i ). Thus, H1
and H2 in Model 2 can be tested by confirming whether the following inequalities
are reasonable:

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Table 6  F-test results for H3 in model 2

𝛽11 + 2𝛽12 x1 < 0, 𝛽21 + 2𝛽22 x2 > 0.

However, because of the structure, the sales function of online customer reviews
in Model 2 cannot satisfy the monotonicity. To simplify the process of statistical
hypothesis testing, this study assumes that the initial level of positive and negative
review volumes is one in this stage and performs a set of one-sided F-tests. Table 5
reports the testing results, indicating that for the three product types, positive cus‑
tomer reviews can contribute to sales rank, whereas negative reviews impact sales
outcomes. Hence, H1 and H2 can be supported in Model 2 under certain conditions.3
On the basis of the statistical test results for H1 and H2, this study examines the
difference
( in )sales effects of (positive and )negative reviews by verifying whether
𝛽11 + 2𝛽12 x1 is larger than 𝛽21 + 2𝛽22 x2  . An F-test was performed to investi‑
gate the inequation in which the initial volume of online reviews is assumed as one.
These results are reported in Table 6. The results indicate that in all the three catego‑
ries, the effect of negative reviews on sales is significantly stronger than that of posi‑
tive reviews, which means that H3 is verified in Model 2 under certain conditions.
With regard to H4, this study focuses on discussing the quadratic coefficients of
online customer reviews to determine whether the marginal effects of positive and
negative reviews decrease with an increase in volume. According to the nature of
the value function defined in prospect theory, H4 can be proved to be correct if the
sales rank function in Model 2 is concave for negative reviews and convex for posi‑
tive reviews.4 As shown in Table 4, the estimate of 𝛽12 is positive, while 𝛽22 is nega‑
tive, and both are significant at least at the 0.10 level. Therefore, H4 is supported in
Model 2.

4.3 Log‑Linear Model

To satisfy the monotonousness as well as concavity and convexity of the sales func‑
tions, the following semi log-linear model, called Model 3, is specified to further
verify the hypotheses:
∗ ∗
yi = 𝛽0 + 𝛽1 x1i,0 + 𝛽2 x2i,0 + 𝛾1 yi,0 + 𝛾2 pi,0 + 𝛾3 zi,0 + 𝜖i ,

3
 The ratio of online reviews is [0, R) , where R is an unknown positive number that satisfies
|𝛽 |
R < | 2𝛽k1 |, (k = 1, 2) and R < 100 simultaneously.
4 | k2 |
  A large value of sales rank represents a small scale of sales volume.

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The Review of Socionetwork Strategies (2018) 12:135–151 147

Table 7  Parameter estimates of log-linear model

*p < 0.1 , **p < 0.05 , ***p < 0.01

Table 8  F-test results for H3 in model 3

where x1i,0
∗
and x2i,0
∗
 , respectively, represent the natural logarithms of the ratios of
positive and negative online reviews,5 and the remaining variables are defined as
previously. The error term is assumed to be distributed i.i.d. normally, with mean 0
and variance 𝜎 2.
Table 7 presents the estimation results of Model 3. First, it indicates that the fit‑
ting degree of the log-linear model is better than those of the general linear and
quadratic function models. In addition, as expected, parameter estimates of 𝛽1 in
Model 3 are also negative and significant, whereas the estimates of 𝛽2 are positive.
This means that in online markets, positive reviews could help build sales momen‑
tum, whereas negative reviews adversely impact sales. Therefore, H1 and H2 are
supported by Model 3.
An F-test was performed to test whether the effect of negative ratio on sales
is stronger than that of the positive ratio (H3) (see Table 8). Similar to the results
of Model 1, Model 3 obtains a significant result to substantiate that the alterna‑
tive hypothesis (i.e., 𝛽1 + 𝛽2 > 0 ) can be accepted. Hence, H3 is also supported by
Model 3.
Given the properties of logarithmic function, H4 is always established in the Log-
linear Model.

5
  To avoid taking the logarithm of zero, one cent is added to the positive and negative ratios.

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 148 The Review of Socionetwork Strategies (2018) 12:135–151

5 Conclusions

Although the use of online customer reviews has been widely discussed in prior
research, most studies have focused on their effect on individual consumer pur‑
chase intentions. The retailing literature still lacks empirical support that exam‑
ines the effects of review valance on sales outcomes at an aggregate level. In
addition, it is unclear how sales effects of online customer reviews change in a
dynamic situation, if at all. To fill the gaps in the literature, this study develops
three statistical models to investigate the impact of online customer reviews on
sales outcomes. It employs online transactional retail data extracted from Ama‑
zon.co.jp to obtain accurate estimates of the dynamic sales effects of positive and
negative reviews. This study speculates a nonlinear relation between the volume
of online reviews and sales and builds on the idea of prospect theory to depict the
sales function.
Prior studies have demonstrated that positive reviews typically enhance con‑
sumer confidence and purchase intention, while negative reviews unfavorably
impact product attitudes [16, 27]. Extending individual intention to the level
of aggregated sales, the study finds that similar to the findings in the previous
studies, positive online customer reviews increase retail sales, whereas negative
reviews negatively influence sales outcomes. This finding can be attributed to the
possibility that the sales effects of online customer reviews are indirectly medi‑
ated by an individual’s decision.
Prospect theory maintains that values are differently assigned to gains and
losses and that losses significantly impact consumer perceptions than an other‑
wise equivalent gain. Based on this theory, the proposed estimation results in
this study indicate that the effect of negative reviews on sales outcomes is sig‑
nificantly stronger than that of positive reviews. This finding also provides the
needed empirical support to the opinion that negative information is more influ‑
ential than positive information, which has been suggested in prior psychological
research [2, 15, 31].
Interestingly, in addition to the difference in the influence of positive and nega‑
tive reviews, this study explores the change process of the sales effect of online
reviews. The analysis results of the quadratic function model (Model 2) indicate
that starting with the origin as the reference point, the function of sales rank is
significantly concave for the volume of negative reviews and convex for positive
reviews. Moreover, the fitting degree of the log-linear model is better than that
of the linear model, indicating that the relation between sales and positive/nega‑
tive reviews is nonlinear and closer to being S-shaped. This finding supports our
speculation that the marginal effects of positive and negative online reviews will
gradually decrease.
This paper contributes to the existing literature in three ways. First, despite
the evidence concerning the importance of online reviews, which has been
extensively investigated in prior research, little is known about the extent to
which online customer reviews influence retail sales. Although some studies
have assumed that online reviews may ultimately influence retail profits through

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The Review of Socionetwork Strategies (2018) 12:135–151 149

the mediation of consumer purchasing decisions [16], this argument still needs
empirical support. To avoid the bias caused by heterogeneous individual deci‑
sion making, this study directly discusses the relation between online customer
reviews and sales outcomes. Meanwhile, the direct investigation into the sales
effects of online reviews can help marketers understand ways to effectively man‑
age consumer reviews. Second, the previous studies have explored the linear rela‑
tion between online reviews and consumers’ perceptions. In contrast, this study
introduces prospect theory as a theoretical framework to obtain a more accu‑
rate assessment of the sales effects of online customer reviews in the dynamic
process. Three statistical models were proposed to examine the above relation.
The results indicate that the function of retail sales is S-shaped, asymmetrical,
and steeper for negative reviews than for positive reviews. Third, unlike survey
methods and psychological experiments, the use of web crawling technology can
directly retrieve actual transaction information published online and help mar‑
keting academics and managers analyze consumer purchase behavior faster and
more cost-effectively.
The following managerial implications can be drawn from the findings of the
study. Due to information asymmetry and perceived risks in online markets, indi‑
vidual purchase decision making tends to be more influenced by other consumers’
previous behaviors such as their WOM and feedback. Consequently, managers of
e-markets need to better utilize positive customer reviews to increase consumer
awareness about products and generate greater sales [16, 27]. In addition, this study
finds that the adverse impact of negative reviews on sales is significantly stronger
than the favorable effects of equivalent positive reviews. This finding implies that
compared with giving customers incentives to promote and increase the volume of
positive reviews, e-marketers should strive to reduce the ratio of negative reviews
and improve customer satisfaction.
This study suffers from some limitations related to data collection and interpreta‑
tion. First, although this study used objective transaction records instead of tradi‑
tional questionnaire and experiment to guarantee the credibility and accuracy of the
data, the sample was extracted in a short-term and from only three products. As a
result, the generalizability of the findings might be biased and limited due to sea‑
sonality and product heterogeneity. To improve generalizability, a longer time-series
approach across a range of products will be required. Second, because Amazon.co.jp
does not offer the exact number of items sold, this study used sales rank as a proxy
for the sales volume to investigate the influence of online reviews. This approach
may be market-specific and may result in estimation discrepancy. Therefore, future
research must explore whether other online markets display similar results. In addi‑
tion, this study assumed that the attention given to positive and negative reviews
is undifferentiated. However, actual behavior suggests that negative reviews may
attract more attention than positive reviews, which makes the former more influen‑
tial. Future research can improve this possibility by introducing eye-tracking tech‑
nology to confirm consumer attention.

Acknowledgements The authors wish to thank the editor and two anonymous reviewers for their
reviews and constructive suggestions throughout the review process. We also thank Prof. Miyako Mineo

13
 150 The Review of Socionetwork Strategies (2018) 12:135–151

for helpful comments on this paper. This work was supported by JSPS KAKENHI Grant Numbers
JP15H06747, JP17K18152.

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