An Empirical Study on How Third-Party Websites Influence the Feedback Mechanism between Online Word-of-Mouth and Retail Sales

Firms use social media marketing to promote products and collect consumer feedback for the product development process. Their practice of investing in retailer-hosted Word-of-Mouth (internal WOM) is supported by a positive feedback mechanism between internal WOM and retail sales. Internal WOM is a sales influencer: consumers can get informed about a product by a large volume of internal WOM. It is also a sales outcome: greater past sales lead to more WOM. Beyond internal WOM, consumers are shown to search widely for product information on third-party websites. Consequently, many firms also start to invest in content on third-party websites. However, little is known regarding the interplay between internal WOM and the contents of third-party websites, which have both been invested in by firms in recent years. In the context of the online software market, this study examines how WOM hosted by thirdparty websites (external WOM) and third-party free sampling influence the feedback mechanism between internal WOM and retail sales. Using data from Download.com and Amazon.com, we analyze the impact via a simultaneous equation model in a Bayesian hierarchical framework. We find that external WOM and third-party free sampling moderate the sales-outcome role of internal WOM in different ways. Receiving external user reviews amplifies the impact of past sales on volume of internal WOM; whereas third-party free sampling weakens the impact of past sales on internal WOM. Moreover, this impact of external WOM and third-party free sampling on the sales-outcome role of internal WOM is much more significant than their impact on the sales-influencer role of internal WOM.