The impact of online word of mouth on consumer decision-making : the case of cinema audiences

This thesis contributes to the knowledge on the impact of word of mouth on consumer decisions and the manner by which consumers learn from it. Using a sample of 132 motion pictures released between April and September 2010 and more than 38,000 online ratings from a social network, word of mouth is clustered into two dimensions: volume, representing the amount of online posts, and valence, representing the aggregate opinion of consumers on a particular film. A novel approach to calculate the valence measure is developed in order to account for different ways, in which ratings may be interpreted. Mixed-Effects Methods are used to create a parsimonious model accounting for the systematic variation of clusters of films within the data around the population mean. The results show that the volume of word of mouth positively affects consumer decisions, indicating that they engage in observational learning. On the other hand, the valence of word of mouth is insignificant, meaning that the qualitative evaluation of motion pictures by consumers does not. influence subsequent audience decisions. These findings are attributed to the peculiar nature of motion pictures, as they are unique experience goods commonly only consumed once, have a very short life cycle, and are heavily marketing-driven, leading to a rapid decline in revenues after their opening.