Online Review Response Strategy and Its Ef- Fects on Firm Competitive Performance

Online reviews have transformed consumer behaviour in product information searching and sharing. While some literature frames online reviews as “electronic word of mouth,” we posit that an online review system is an IT-enabled customer service system and that online reviews are not an electronic version of a traditional face-to-face phenomenon. Their growing popularity engenders new phenomena for which information systems scholars are best positioned to understand the full complement of consequences. One such consequence, at the firm level of analysis, is the impact of online reviews on the firm’s success. More specifically, we focus on the question of how profit-maximizing firms should respond to online customer comments. Our findings show that system usage quantity positively impacts the firm’s competitive performance, and that responses have a stronger positive impact when they address negative reviews. We investigate four approaches to managerial response and find significant performance differences between the strategies. This finding proves that not only “how much” the system is used, but also “how” the system is used, affects firm performance – an effect long theorized by information systems researchers that has eluded empirical demonstration.