The Effect Of Consumer Reviews On Vendor-Related And Market-Related Price Sensitivity

The increased transparency of electronic channels is barely reflected in research investigating online consumer behaviour. To address this issue, we introduce two different types of price sensitivity: vendor-related and market-related price sensitivity. Price sensitivity is generally assumed to vary with product quality. While product quality is hard to discern for some product types, online consumer reviews enable consumers to easily differentiate between products that other customers perceive as high or low quality. We hypothesize, that the impact of perceived product quality on price sensitivity depends on the type of price sensitivity. We develop a model to test the impact of our two types of price sensitivity on sales as well as their interaction with review valence. We present early empirical evidence to support our conceptualization. Using a longitudinal dataset of 37869 prices, market prices and sales figures of 70 digital cameras, we identify both types of price sensitivity for Amazon customers. Furthermore, we find that consumer review valence moderates their impact on sales. Vendor-related price sensitivity is more important for high quality products while market-related price sensitivity is increased for low quality products. We outline the next steps of the current research project and describe its theoretical and practical implications.