A Dynamic Model of the Effect of Online Communications on Firm Sales

Interpersonal communications have long been recognized as an influential source of information for consumers. Internet-based media have facilitated information exchange among firms and consumers, as well as observability and measurement of such exchanges. However, much of the research addressing onl...

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Bibliographic Details
Published in:Marketing science (Providence, R.I.) R.I.), 2011-07, Vol.30 (4), p.702-716
Main Authors: Sonnier, Garrett P., McAlister, Leigh, Rutz, Oliver J.
Format: Article
Language:English
Subjects:
Advertising
Analysis
Bayesian analysis
Bayesian estimation
Bayesian statistical decision theory
Consumer behavior
Dynamic modeling
dynamics
endogeneity
Estimation bias
Forecasting models
Information sources
Instrumental variables estimation
Internet
Interpersonal communication
Management science
Marketing
Motion pictures
Musical intervals
Operations research
Parametric models
Sales
Sales forecasting
Social networks
Stock sales
Studies
Telecommunications industry
Websites
word of mouth
Word of mouth advertising
Word of mouth marketing
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Summary:Interpersonal communications have long been recognized as an influential source of information for consumers. Internet-based media have facilitated information exchange among firms and consumers, as well as observability and measurement of such exchanges. However, much of the research addressing online communication focuses on ratings collected from online forums. In this paper, we look beyond ratings to a more comprehensive view of online communications. We consider the sales effect of the volume of positive, negative, and neutral online communications captured by Web crawler technology and classified by automated sentiment analysis. Our modeling approach captures two key features of our data, dynamics and endogeneity. In terms of dynamics, we model daily measures of online communications about a firm and its products as contributing to a latent demand-generating stock variable. To account for the endogeneity, we extend the latent instrumental variable technique to account for dynamic endogenous regressors. Our results demonstrate a significant effect of positive, negative, and neutral online communications on daily sales performance. Failure to account for endogeneity results in a severe attenuation of the estimated effects. From a managerial perspective, we demonstrate the importance of accounting for communication valence as well as the impact of shocks to positive, negative, and neutral online communications.
ISSN:0732-2399
1526-548X
DOI:10.1287/mksc.1110.0642