Why are fake reviews bad for business?
With the news that the Competition and Markets Authority (CMA) is to crack down on fake online reviews, Professor Adrian Palmer explores the potential impact of the proposed legislation on businesses.
Customer reviews have become an important guide for online shoppers. Sellers realise their importance for influencing consumers’ choice, and on the back of this, a murky world of “fake reviews” has emerged. A condition for markets working efficiently is freely available information which allows buyers and sellers to make informed decisions. But if customer reviews are actually sponsored by sellers, how can a market work efficiently? The UK government has stepped in with plans to give the Competition and Markets Authority (CMA) powers to fine companies and individuals involved in creating and disseminating fake reviews.
Although this intervention has been widely welcomed, the question can also be raised whether regulation will just push illegal activities underground, and whether market mechanisms themselves will provide more of an incentive to improve the trustworthiness of review websites.
Why are customer reviews important?
Online shops give buyers fewer evaluative cues than traditional shops. Instead of potentially using all five senses to judge a product, online evaluation is generally limited to what can be seen on a two-dimensional screen. Furthermore, in a physical store, buyers can get a good idea about the availability of the goods they see. Online, they have less certainty about their availability, especially where an unfamiliar supplier may be located overseas. Reviews therefore provide a valuable heuristic for consumers, informing their evaluations of products and suppliers. With transition to online, consumers have had to learn new ways of buying and navigating their way through the often much more extensive choices available.
In this buying environment, other customers’ reviews play a much bigger role in overall evaluation than they have traditionally done. For sellers, having good reviews can be the primary basis for achieving sales.
There is now copious evidence of the effects of reviews on consumers’ choices. The CMA estimated that the average UK household spends about £900 each year after being influenced by online reviews. It has also estimated that such reviews potentially influence £23bn of UK customer spending every year.
The UK consumer organisation Which? has been following the issue of fake reviews. It undertook a controlled experiment with 10,000 consumers who were presented with varied experimental conditions relating to faked scores and comments about a product. The findings were robust – 10.5% of participants chose the product in the control conditions with no fake reviews, but this rose to 23.1% for an identical product where faked comments and inflated scores were presented.
How do fake reviews work?
Buying processes typically have distinct stages, especially where a purchase is unfamiliar to the buyer and involves high uncertainty. Often, a buyer would face too many choices, and realistically couldn’t individually evaluate all of them. So, a shortlisting process reduces these to a manageable “choice set”. Websites often provide filters for managing this shortlisting process, and one widely used filter is by products’ review ratings. A seller who has not achieved a high review score may not even get into a buyer’s shortlist.
At a later stage in the buying process, review scores may be used to provide reassurance and justification of a purchase, and to remove the final barrier to pressing the “buy” button. An overwhelming presence of top review scores helps to remove this barrier, especially if recent scores are all high. Hence the need for sellers to maintain a continuing high volume of top review scores.
Regulation or market governance of reviews?
Sellers have for a long time used customers’ testimonials to promote their products. Buyers may choose to believe these carefully selected testimonials to justify their purchase at an emotional level, even if their cognitive reasoning recognises that these selective testimonials are biased by the seller.
For online reviews it becomes much harder for buyers to know which messages can be trusted as open and “democratic” representations, rather than biased messages created or filtered by the seller.
One view is that regulation is needed to make illegal the use of fake reviews. However, the motivation to generate fake reviews will not go away and developments in technology have a habit of moving faster than legislation.
The Government is proposing that the CMA will be able to directly impose financial penalties on businesses that transgress new rules, including a law against offering to write and commission fake reviews and a requirement for websites hosting consumer reviews to take reasonable steps to check they are genuine.
While some businesses may privately complain about costs of compliance, the proposals should be seen as levelling up the poorest performing review sites to the standards of the best sites which have developed robust processes for creating a trusted review process.
Why are fake reviews bad for business?
A retailer with no vested interest in preferring one branded product over another is likely to gain reputational advantage by presenting customer reviews which are trusted. Furthermore, there is evidence from a survey by Trustpilot that 62% of consumers are more likely to trust a review site which doesn’t censor genuine reviews. Buyers trust sites which have a good spread of positive, negative and middling reviews. Even where there is a relatively open policy on submission of reviews, visitors will come to trust a retailer that has taken the trouble to weed out reviews which show tell-tale signs of being produced in a “fake review factory”- for example language which sounds contrived rather than as typically spoken, and includes brand references which may be seen as promotional rather than informative. Review site owners have many techniques available for identifying potential fake reviews, for example by spotting repeat patterns of language or IP addresses. The most trusted review sites will aim to be one step ahead of subversive techniques used by fake reviewers.
The devil is in the detail of proposed curbs on fake reviews. A challenge will be whether legislation will keep up with new forms of fake reviews, and whether the outcome may be costs of compliance for best of practice review sites, while an underworld of dubious review sites continues to co-exist. Eventually, market forces might be just as effective at sorting the review sites who invest in checks and controls from those which are more lax and less trusted.