Notes

[MUSIC].
So welcome again, everybody.
Today, we're going to talk about something
really cool and
really interesting, which is the whole
idea of reviews.
And how they affect our behavior both
online and offline.
Part of our omni-channel discussion.
So how are we going to do that?
Let me just give a quick overview of where
we're going to go.
We're going to start with some motivation
for why
review information is important and
effects behavior on markets.
And I'm going to give you a little bit
of economic theory, which I think is
really fascinating
based on some research that was done by a
colleague out in Los Angeles a few years
ago.
I think you'll enjoy that, and then
finally, I'll follow up
some other examples of Amazon vs Barnes
and Noble on the internet.
And then Expedia vs Trip Advisor.
I'll explain those as we get through.
So here's the first motivation for reviews
and user reviews.
You'll notice there on the slide the
statistic could even be higher.
I think I'm being quite conservative here,
that about 60%
of us, at least in the United States, but
I'm
sure around the world, read reviews before
we make purchase decisions.
And, secondly, positive reviews, whether
they're for books, restaurants, movies,
jeans,
whatever it is that we're buying, are seen
to influence people's behavior.
So bringing this information into the
market is very, very critical.
You might remember from one of our
previous discussions that
one of the frictions that we often
experience in a market
is we don't really know how good a
restaurant is,
how good a product is, how good a movie
is.
And now that information is being made
available much more easily
and much more efficiently, often by people
who are complete strangers.
But the information's still useful for our
purchase decision.
Also, since we're here in Philadelphia, or
at least I am.
I want to put in a couple of quotes, that
I think
speak to the importance of reviews
and merchants and probably even for
individuals.
So, Ben Franklin said, it takes many good
deeds to
build a reputation, and only one bad one
to lose it.
So, that might be interesting to think, if
you write a book, and you're selling it
on Amazon, and you're getting mainly five
star
reviews, and suddenly a one star review
comes along.
I wonder if that would affect your sales?
Well, we'll answer that question as we go
through the discussion a little further.
William Shakespeare, perhaps because of
his
British heritage, I guess I'm partly from
the area, coming from New Zealand.
He's a little more cynical and what he
said in the quote there is, a
reputation is an idle and most false
imposition;
often got without merit and often without
deserving.
So what he's saying is sometimes people
can build fake
or phony reputations and that's certainly
true today in 2013.
In fact, many of the reviews apparently
that we
see on places like Amazon and Trip
Advisor, and Yelp,
may in fact not be legitimate.
We'll get to that later on as well.
So, just for your interest, what I've done
here is
I've show a bunch of links that you can go
and check out if you want to see how
people
review airlines, people review recipes,
people review doctors and so forth.
And, what you'll see here, is a flavor of
how reviews are presented.
Whether visually with stars, whether they
show
the average, the deviation when it's
counted.
So,
just, you may already be using some of
these
things, but just go and take a look to
get a sense of how this information is
presented,
before I now give you some of the theory.
So before we get into the theory, I just
want to share with
you a very interesting anecdote that I
found on Chris Dixon's blog.
So this is a story about a startup that
raised, as
you can see on the slide, about $4 million
in venture funding.
was eventually sold.
And then roughly at the time of us
preparing these videos,
in Philadelphia, was a publicly-traded
company worth over $6 billion.
So who is this company?
This company actually is Trip Advisor,
originally purchased by Expedia
for 210 million, and now has grown into a
huge
company that's really a company primarily
putting information into the
market, information that's contributed by
people like you and I.
So for the budding entrepreneurs out
there,
watching this, sometimes you can build a
great business just by bringing
information into a market and helping
people make better decisions and better
choices.
So let's begin with a little bit of
theory.
Sometimes it's helpful to know this to
ground what we're thinking about.
So economic theory would suggest that more
information to consumers is almost always
better.
The more light that's brought to bare on a
market, it's usually better for certainly
the, the end
uses, people like you and I.
In addition, an economist might tell us,
that if
information is provided into a market,
that may change the
behavior not only of the buyers and who
they decide
to buy from, but also the behavior of the
sellers.
Maybe they'll be more motivated to provide
better quality products and services.
So to examine this there was a very
interesting study done by two coauthors,
Jen and Leslie.
I've provided the reference for the paper
in the notes,
if you want to read the original paper.
Who looked at what happened to the market
for food, restaurant
food, in Los Angeles after inspections
were done of the restaurants there.
So what I've shown in the slide,
the actual photographs of ratings of
restaurants
that appear in the windows of restaurants
in Los Angeles in the United States.
You also see them now in New York and
probably other places, too.
Perhaps, in your home country, you have
something similar.
So the way this works is a health
inspector visits a restaurant.
The health inspector goes through many,
many things
in terms of the hygiene of the restaurant.
Gives it a score out of 100.
If the score is more than 90, then that
restaurant places a
sign in the window that says that this is
an A hygiene grade.
B is a lower grade, and C of course is a
lower grade down still.
And so, the co-authors, Jen and Leslie,
wanted to figure out whether or not
providing this information into
the market would change the behavior of
the consumers that were there.
And what did they find?
Well, what they found was, the demand of
restaurants that
got an A went up quite substantially,
about five to 6%.
Demand at restaurants that got a B
actually went up hardly perceptibly, less
than 1%.
And demand at
restaurants that got a C, of course, went
down.
So, once the information was in the
market, people, as you might imagine,
wanted to go to restaurants that had
better hygiene and better quality food.
So that was a buy explanational.
That was an effect on demand.
But there's also an effect of information
on supply, which
I think is at least as interesting,
perhaps even more so.
So what did the provision of that
information in the market do to the
sellers?
Well, it caused them actually to increase
the quality of what they're offering.
Because now there's a more of a benefit to
being known as an A restaurant.
So to check this out, what the researchers
did was something very clever.
They looked at the number of people
that got sent to hospitals for
food-related illnesses.
And what they found was, in markets where
the signs were
in place, that went down substantially
about 13%, whereas in other parts
of California that didn't have this system
the number of
people going to hospitals for food-borne
illness was actually going up.
So again, that's a pretty clever test that
shows this was also affecting the
buyer, the behavior of the sellers, as
well as the behavior of the buyers.
So what did we learn from this?
Here's the key principle, is that reviews
and review
systems definitely change behavior, both
of buyers and also sellers.
But the most
important thing, knowing that, is that
reviews ideally should be
objective and verifiable, but this is not
always the case.
So let's look at a couple of research
examples.
The first one was a very clever study that
was done by two professors
at Yale that examined whether or not
reviews for books help ramp up sales.
And they looked at two different websites,
amazon.com and barnesandnoble.com.
And what they found is, most of the people
who write reviews are in fact, fairly
generous.
there are five possible stars that you
could give for a book at
Amazon, and the average rating at the time
of the study was about 4.1.
On Barnes & Noble, for whatever reason,
people are even more generous.
The average rating was about 4.5.
One-star reviews are pretty rare.
That's the lowest review, so one-star
reviews would show up about 7% of
the time on Amazon and about 3% of the
time on Barnes and Noble.
So did all of this reviewing have any
impact on sales?
Yeah, you bet it did, so what the authors
found
is if you got more positive reviews, sales
of your book
went up, and they also found, if you got
more negative
reviews, one star reviews, then sales of
your book went down.
And then in addition, there was kind of a
subtle effect of this negative
information such that if I got a negative
review on a book that I've written,
a one-star review, that seemed in some
sense to also slow
down the rate of positive reviews that
were coming along subsequently.
So again a very, very interesting study.
Showing that reviews are affecting sales.
Now of course, this might motivate people
who are selling books to review
their own books if they know it's going to
have a positive effect.
So what I'm showing here, and you can read
the articles in the links.
There's a picture of an intesting lady,
Harriet.
Who has reviewed over 25,000 books on
Amazon.
So I'm not suggesting that she hasn't.
But it's just interesting to notice that
one person can generate so many reviews.
Now, in addition to our friend, Harriet,
there was another fellow who was
doing something, perhaps, a little more
devious but, in some ways, quite clever.
So there's a fellow called Mister
Rutherford.
You can read the article.
I've provided a link for it.
What he decided to do was to offer himself
as a review writing service for authors.
So if you'd just written a book he might
be willing to write
20 reviews for you for some sum of money,
let's say $100 or $500.
Completely, of course, fake reviews.
And what was interesting about this is
Mister Rutherford
was making about $28,000, not a year but a
month.
By doing these fake reviews.
So, what does this tell us?
It tells us
that information's powerful.
And, it also tell us that sellers
might want to manipulate the information
that's offered.
So, you might be sitting there scratching
your head
as I was when I first read that story.
Boy, somebody making almost $30,000 a
month providing fake reviews.
So, clearly this is a bit of a problem,
and it's
come to the attention of many other
writers and kind of, experts.
And, so, how might one address this
problem of fake information
being out there affecting people's
behavior.
While on the next slide I'm showing a
story.
You can read the full story in the New
York Times.
About a gentleman who's an expert in
something called data mining.
So, what he would do, is he would go
through all the texts of reviews and
try and figure out what review are ree,
real and what reviews are fake and so on.
Now, even though that's a pretty
sophistiated techniqute, it turns out that
it's actually difficult for a computer to
figure out what's really true and
what's not.
Under certain kinds of circumstances.
So, it would be difficult, for example,
for a, a data mining
algorithm to figure out if I was saying
something sarcastically, for example.
So those nuances of language might be
quite difficult.
So to look at this question from a
different perspective,
[UNKNOWN]
who's a professor now at USC, she was one
of
the original authors on the other study I
mentioned about looking
at the effective reviews on Barnes and
Noble and Amazon,
decided to tackle this problem in a very,
very interesting way.
So let me illustrate that for you.
What she did is she wanted to compare
ratings on
Trip Adviser versus ratings on Expedia for
the same property.
So let's choose a property so we can all
be clear about what we're
talking about.
So it turns out, there's a Sheraton Hotel
on
the corner of 36th and Chestnut Street
here in Philadelphia.
So Dana and her coworkers were curious as
to whether the reviews of
that property were the same on Trip
Advisor as they were on Expedia.
So most of you have probably been to those
websites.
And you'll notice, again, it's a five-star
review system.
And you get a histogram of reviews.
So some number of one-star reviews, two-
star reviews,
three-star reviews, four-star reviews, and
five-star reviews.
Now if both of those sites are providing
the
same objective information, those
histograms
should be identically matched, right?
So that was the test that she wanted to
see.
Were the histograms different, for the
same property.
And what she found was on Trip Advisor,
there
were slightly more one star reviews for
certain properties.
And also
slightly more five star reviews.
And when she dug in a little bit more,
what she found was that
if you were operating that hotel, the
Sheraton Hotel, at 36th and Chestnut
Street.
And located quite close to you was a
competitor.
A competitor who perhaps just owned their
own little hotel, let's call it Chris's
Hotel.
Chris, our friendly videographer.
And Chris's Hotel is competing with the
Sheraton.
And because he's a one-man shop, not
really
accountable to a big organization as I
would
be if I were a manager at the Sheraton.
He would be more likely to write a
one-star review
and try and knock his competitor, the
Sheraton of 36th.
And he would be more likely to write
a five-star review and to praise his own
property.
That's what Dena and her colleagues found,
so again, it's
very, very interesting to think about
whether review information is valid.
Because certainly, people are acting on
the basis of review information.
So this is a good point for me to now
summarize
the key idea of you, to introduce reviews
into a market.
What you'd want to do is make sure those
reviews are objective and verifiable.
And so, what Dana did in her study is she
made an assumption.
That reviews on Expedia are more objective
than reviews on Trip Advisor.
So I'll let you think about that for a
moment as to
what the reason might be if you've looked
at both of those sites.
I use
both myself when I'm deciding where to
stay.
Trip Advisor was less objective than
Expedia for the following reason.
In order to be able to post a review on
Expedia you
have to have stayed at that property
within the last six months.
So Expedia will send you an e-mail.
And, they'll know from your credit card
receipt
that you booked and you actually stayed
there.
Where as with trip advisor, you are
supposed to
have stayed there, but that need not be
the case.
I could go and
write a review for a property that I had
not stayed at.
So, again I think this is a fascinating
area of online, offline competition.
Again, I'd like to, to challenge, and
encourage those of
you out there who are thinking about
starting your own business.
If you can start a business that brings
information
into a market, that can be something very,
very powerful.
If you think about the story of how
Trip Advisor has grown into a
multi-billion dollar company,
that's essentially just gathering, and
processing, and providing
review information that's generated by all
of us.
[MUSIC]