Document Type

Discussion Paper

Publication Date

2-2023

CFDP Number

2254R3

CFDP Pages

57

Abstract

The propensity of consumers to talk after a good versus bad experience with a product can differ based on information available from other marketing channels, for example the brand image or advertising. This can result in selection of positive/negative word-of-mouth for reasons outside of product quality. We develop a unifying framework of WOM, brand image, product advertising, and pricing with a focus on the instrumentality motive of word-of-mouth: early adopters talk to inform new buyers’ purchasing decisions. The different marketing channels shape the information sharing behavior of the early adopter as well as the target consumer’s purchase decision. We show that if the brand image is strong, then in equilibrium only negative WOM can arise. In contrast, with a weak brand image, positive WOM must occur. We also show that holding product quality fixed, a positive advertising signal realization leads to a more positive WOM selection. The model can be applied to both one-one informal WOM as well as online reviews. The assumptions and main predictions of our model are consistent with those that we identified from a primary survey and observational Yelp data.

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