Mandatory disclosure of incentives for online product reviews benefits both sellers and consumers, Lingnan research finds

HONG KONG, Jan. 17, 2022 /PRNewswire/ -- In a recent study steered by the Department of Marketing and International Business of Lingnan University in Hong Kong, it is found that online product reviews with mandatory disclosure of incentives provided by advertisers, in comparison with voluntary disclosure, has a positive effect on review helpfulness and sales, and is in the best interest of both sellers and consumers. Providing novel insight into the disclosure of incentives for online product reviews, these findings not only address the concerns of sellers, consumers and regulators, but have broad implications for e-marketing, consumer welfare, and public policy in the platform economy.

As digital marketing continues to rise worldwide, online product review becomes a key component of branding and promotion. To boost sales, many advertisers provide incentives for reviewers to post positive comments in order to influence consumer perceptions and purchase decision. Despite the legal requirement, most reviewers do not disclose these incentives. It is commonly believed that disclosure of incentives has a negative effect on the credibility of product reviews, thus affecting the sales.  In view of the increasing social concern about the responsibilities and obligations of online platforms and advertisers, as well as whether there should be clear guidelines for marketers and reviewers to disclose the incentives, Lingnan University scholars initiated a study to look into the impact of mandatory and voluntary disclosures on review bias, helpfulness and product sales.  

The study used product review data from Amazon.com, the largest and most popular online retailer that allows consumers to write a review and purchase products on the same platform.  A random sample of 388,319 reviews posted between January 2014 and June 2017 were studied, among them, 47,203 reviews featured a mandatory disclosure. The research team compared incentivised reviews with mandatory or voluntary disclosure in terms of their effects on review bias, votes of helpfulness, and product sales.

By conducting data forensics and sentiment analyses, the study finds that mandatory disclosure is more salient than voluntary disclosure in the context of incentivised product reviews, leads to less biased reviews and has the desired restraining effect on the reviewers. As indicated by the number of helpfulness votes they receive, mandatory disclosure leads to better quality reviews, helps win consumer trust and confidence, which in turn helps increase product sales.

In contrast, voluntary disclosure or no disclosure may generate more favourable reviews, but inevitably raise consumer expectations and may result in disappointed customers. The heightened suspicion among consumers with too positive reviews will in the end dampen sales performance.

The results suggest that online marketers need to think twice about incentivising reviewers for more favourable reviews as the relationship between incentivised reviews and product sales is indeed not as straightforward as it appears. The findings also highlight the need for regulated mandatory disclosure by e-platforms. If unregulated, the informational value of online product reviews may be discounted or diminished, leading to a vicious cycle of consumer discontent to the detriment of e-tailing.  

It is recommended that the platforms should adopt mandatory disclosure for incentivised reviews, as this can make reviews more helpful to consumers and ensure the authenticity and veracity of the information they contain, which in turn promotes the healthy development of e-commerce and social selling.

The study was conducted by Professor Cui Geng, Assistant Professor Chung Yu-ho and Associate Professor Peng Ling from the Department of Marketing and International Business of Lingnan University in Hong Kong. The findings has appeared in recent issue of Journal of Business Research.

SOURCE Lingnan University (LU)