Editor’s Note: This article is originally appeared on TrustedCompany.com
On this blog we are often talking about the benefits of reviews for shop-owners. We told you more than once that customers trust reviews and let them influence their buying decision. The purpose of this article is to explain why customers believe in reviews, i.e. what the benefits for them are.
During the pre Internet and e-commerce era, when you wanted to buy something you simply went to the merchant and took a look at the product. In case you wanted to buy a more expensive or complex product like a computer or a TV in most cases you also had the chance to test the product right in the shop before buying it. So basically you were able to gather all information that were necessary for a well-funded decision to whether buy or no to buy a product. An economist would describe this as a market with perfect information. Both sides exactly have the same information about a product. Furthermore if you decide to buy the product in the store you can just take it right away by yourself
The dawn of e-commerce has changed this experience fundamentally. Of course it is obvious that if you shop something online you can’t really test the product beforehand. What’s interesting about that is the implication: There is no perfect information anymore. Now the merchant has much more information about the product than the potential buyer. In terms of economics this is called information asymmetry. Another change is that you can’t just decide to buy the product and take it away instantaneous, instead you have to wait until the merchants sends the package to you. You can’t observe what the merchant does. Is he delivering it as fast as he can or is he lazy and does nothing because you already paid him upfront? You don’t know. This is called hidden action.
Almost immediately there were black sheep that made use of this: They advertised high quality products while really selling goods with bad quality, delayed the delivery or even didn’t send it at all, because you already paid them. They could do this because for you as a shopper with this asymmetries it was next to impossible to verify whether a merchant is a good merchant or not.
This had consequences for the whole market: due to the fact that good merchants were not distinguishable from bad ones the customers didn’t want to pay the price for high quality products because they had to expect to get low quality products in return. Due to this the good, customer orientated merchants got into pressure. They clearly needed to differentiate themselves from the bad merchants.
So now, what was the solution or better what still is the solution to the described problems? Simple: Eradicate the information asymmetry: Make people speak up! Make customers raise their voice for good merchants. But how? This is where the reviews come into play. A review is nothing else than a personal experience with a merchant or a product, shared online. These reviews are also highly authentic when they are posted on a third party website like TrustedCompany.com. For example Nielsen found out that 72% of the people trust online reviews as much as a personal recommendations from you friends. Of course you still can’t touch the products beforehand and you still have to wait until your goods are delivered, but now it is easily possible to look at how other customers experience with the merchant were. Did they receive the quality they paid for? Was the delivery quick?
This enables you to again be able to distinguish between good and bad merchants. Of course that is also dependent on the number of reviews that are available. The more, the more reliable is your judgment. But in general the following applies: Bad merchants that try to disguise themselves, as a good merchants will quickly be exposed by the reviews. Their ratings will be low and other customers won’t do business with them anymore. This puts bad merchants quickly before the choice: Going out of business or improving quality and reliability – in short: Caring for their customers. Meanwhile good merchants will receive high ratings and therefore can easily be identified as trustworthy. Their sales will go up, the customers will be satisfied and the merchant will be economically successful.
So you see reviews are not just good for the merchants and good for the shopper in terms of identifying good and bad merchants, but they are also making sure that you will be able to shop at good merchants at all because without them good merchants wouldn’t even survive. So be sure to always review your experience with an online shop no matter if good or bad in order to keep help the good merchants and put pressure on the bad ones.
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