It's been long known that consumer reviews, positive or negative, have a tremendous impact on the purchasing decisions of prospective buyers. But Columbia Business School professor Costis Maglaras, an expert in pricing and revenue management, has developed a new equation to help businesses realize the full value for revenue gain from online reviews.
Maglaras and his team developed this method by analyzing social learning and its effect on market potential and sales trajectory. On average, Maglaras says, "firms will benefit from encouraging consumer reviews because the increased profit from highly reviewed products will exceed the loss from poorly reviewed ones." In turn, businesses will have the ability to more effectively price new products, and strategically adjust pricing over time in the most gainful direction.
Read more about Maglaras' research in Columbia's Ideas at Work.
Download the complete report, Monopoly Pricing in the Presence of Social Learning, from Social Science Research Network.