January 31, 2008, 12:00 AM

The Power of Customer Reviews

Customer reviews can lift sales—and do much more. Retailers, for example, are including reviews in e-mail marketing, with big results; and they’re using reviews to enhance how shoppers navigate sites. But gaining enough reviews and avoiding shenanigans are challenges.

Word of mouth is a proven way of driving sales. When product buyers give a thumbs-up, the endorsement carries powerful credibility that retailers and manufacturers cannot duplicate in product descriptions. Little wonder, then, that customer reviews can pack the same punch online. Maybe more, because of the Internet’s power to distribute consumer comments more widely and rapidly than word of mouth.

In addition to being a potent means of upping conversion on favorably reviewed items, customer reviews on e-commerce sites offer more to retailers. Retailers can leverage the consumer-generated data in e-mail, catalogs, circulars and in-store signage. And they can feed what customers are saying online about brands and products into companywide initiatives on merchandising, marketing, inventory planning and vendor relationships.

Looking for more from its online customer reviews, multi-channel retailer Petco Animal Supplies Inc. recently conducted an experiment. Petco since 2005 has used technology from vendor Bazaarvoice Inc. to support online customer reviews. It discovered that shoppers who navigate to pages with top-rated products convert at a 50% higher rate than others. Petco also found the influence of online customer reviews wasn’t limited to shopping the site. When the retailer conducted its experiment to test the effects of including customer-generated star ratings in marketing e-mail, the test campaign had a click-through rate five times the usual rate.

“Consumers are highly influenced by the experience of other consumers-far more than they are by marketing professionals,” says John Lazarchic, Petco vice president of e-commerce.

A powerful feature

Petco is not alone. Online customer reviews are proliferating in e-commerce. The functionality can be created by a retailer in house or purchased from a vendor; Bazaarvoice and PowerReviews Inc. dominate the vendor market. Today, retailers that are reaping benefits of online customer reviews are looking for ways to leverage reviews content. Results of broader and multi-channel use of customer reviews are beginning to trickle in.

But so are the challenges of looking to reviews to reliably carry the ball on bigger jobs-let alone their primary task of helping boost conversion-as retailers grapple with issues such as the volume of reviews. Volume is undeniably affected by the nature of the product.

“Amazon.com has been doing reviews for years. But at Amazon.com, a book that has been on the site from the first day may still be there,” meaning it will probably have a large number of reviews, says Forrester Research Inc. principal analyst Sucharita Mulpuru. “Most retailers can’t say the merchandise on their site 10 years ago is still on their site today.”

As a result, merchandise without long lives requires more effort to generate and manage reviews. “This is a big difference, and it makes it challenging for companies like apparel retailers to justify the investment,” Mulpuru contends.

For retailers looking for an outsourced solution, that investment can range from around $2,000 per month to hundreds of thousands of dollars a year at Bazaarvoice, depending on page views, expected review volume and whether a retailer buys optional add-on services such as photo or video review functionality.

Vendor PowerReviews uses a cost-per-order model similar to an affiliate model. It provides review functionality free to retailers in exchange for permission to put any reviews up on its shopping and review property Buzzillions.com, which launched in April. It collects a share when shoppers click through to a retailer from Buzzillions.com to make a purchase.

Just how effective are online customer reviews at getting online shoppers to purchase? As Mulpuru notes, they’ve been integral to Amazon.com’s model, starting with books and media products. And with the recent advent of technology that lets online merchants tap into packaged solutions to get reviews functionality up and running quickly-typically a rating system accompanied by the opportunity to submit comments in text-more retailers are getting a chance to find out for themselves.

Lifts in sales

Many of those retailers, now with several months or even a year or more of experience with ratings and reviews, can point to lifts in sales of reviewed products as a result. And a 2007 study from the University of Nebraska at Omaha’s College of Information Science on the effect of reviews at online retailer NetShops Inc. supports the notion of a causal relationship between consumers reading online reviews and consumers pushing the Buy button.

NetShops, which uses PowerReviews services, operates multiple online stores and collected nearly 20,000 customer reviews across all its sites between November 2006 and May 2007. Adjusting the calculation of the effect on sales for variables such as increased marketing spend and site enhancements, the study determined that reviewed products experienced a 26% lift in sales.

Brett Hurt, co-founder and CEO of Bazaarvoice, says he didn’t know for certain the extent of reviews’ effect on conversion when he co-founded the company, though he had a fair idea based on what he’d seen earlier as the founder of web analytics company Coremetrics Inc.

“We just theorized it would be there; Amazon.com had done reviews for years,” he says. “I was also thinking about how it would inform merchants where, with analytics, they would be able to tap into customer dialogues. What I didn’t envision, which is happening now, is retailers using reviews as a digital asset, content they can leverage in other channels to drive sales.”

E-mail was the first place off-site that many retailers put online customer reviews to work. It was a short hop given that executives within a company responsible for site content often are also responsible for e-mail marketing.

Bazaarvoice user Bath & Body Works last year tested marketing e-mail containing customer ratings and reviews and compared its performance against that of e-mail without review content. It found e-mail containing reviews produced an average order value 10.4% higher than other e-mail. Customers who clicked through on e-mail containing review content viewed 7.48% more pages on the site, and the average sale per visitor was 11.46% higher.

A good drive

Golfsmith International Inc., another Bazaarvoice client, found that in an A/B split test, marketing e-mail that featured products that received top ratings on its web site produced 42.44% more revenue than did e-mail without ratings content. Further, the click-through rate was 13.94% higher and the open rate 15.23% higher.

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