Online marketplaces have transformed global commerce, empowering startups and established enterprises to compete on equal footing. High online ratings and low prices are supposed to be the great democratizer, wooing customers to spend freely online. But is that true everywhere – or are there country-by-country nuances merchants and their marketing teams need to consider as they launch, price, and sell their goods?
In the Journal of Marketing, a new study analyzes the impact of user ratings and price on products that are distributed globally, are similar in every market, are mobile goods, and are available 24/7. Our research team chose to study mobile apps because they are a major market force: more than 100 billion apps have been sold to 750 million customers since the launch of the Apple App Store, the largest app marketplace. Paid apps now represent a cumulative revenue of $72 billion. In addition, mobile apps constituted the majority (57%) of total digital media usage in 2017.
Our study is the first to analyze the sensitivity of sales to price and user ratings across countries, including developing and developed markets. Our team analyzed the sales of the top 20 apps, including games, leisure apps, and business apps, from the Apple App Store across 276 days and 60 countries to assess how price and product rating sensitivities vary by country.
App developers make 70% of gross app revenues, with platforms such as Apple’s App Store pocketing the other 30%. Developers face significant risks taking apps to market, with the average investment per app reaching $140,000 and monthly revenue averaging $3,200 to $8,100. Developers update apps frequently, to keep user demand high, but also adjust price up and down to achieve revenue and growth goals. Similarly, companies use multiple stratagems to boost ratings.
Price, ratings valence, and ratings volume are key drivers of demand, including for apps. Price sensitivity often depends on economic factors, but may also be related to uncertainty avoidance and gender identity. Ratings volume helps drive customers’ purchase decisions because online peers are seen as more trustworthy influencers than paid spokespeople. Ratings valence (the peer-rated goodness or badness of a product) becomes important when customers want to reduce purchase uncertainty.
Our team found that customers across countries systematically differ in their reactions to price promotions and online ratings. Cultural factors such as individualism, risk aversion, masculinity, and power distance as well as socioeconomic factors such as age distribution, GDP, income equality, smartphone penetration, and educational spending help explain these differences.
Key findings include:
- Price sensitivity is higher in countries with higher masculinity and uncertainty avoidance (such as Italy and Malaysia). The first finding is likely due to the fact that the apps, which were mostly games, align with stereotypically masculine values.
- Rating valence sensitivity is higher in countries with higher individualism and uncertainty avoidance (such as the US, France, and Czech Republic). Individualistic cultures place more stock in anonymous ratings, whereas collectivist cultures favor word of mouth. Similarly, customers seeking to avoid uncertainty depend on ratings to make purchase decisions. • Ratings volume sensitivity is higher in countries with higher power distance and uncertainty avoidance (such as Luxembourg, El Salvador, and Portugal). App popularity, with correspondingly high ratings, increases trust with uncertain customers and wealthy customers, who are more willing to trust anonymous strangers than those in less affluent markets.
- Our team found the highest price and ratings volume sensitivities for countries high in uncertainty avoidance but low in income inequality (such as Thailand). The team found the lowest price and ratings volume sensitivities for countries low in uncertainty avoidance but high in income inequality (such as Spain).
- Ratings valence sensitivity (.029 on average in low-uncertainty-avoidance countries) increases with uncertainty avoidance when income inequality is low (such as Argentina versus Thailand), but decreases with uncertainty avoidance when income inequality is high (such as Spain versus New Zealand).
- None of the structural factors included in the model (average age, education, and phone penetration) significantly affected price, ratings volume, or ratings valence sensitivity in the study sample.
Our team’s research indicates that ecommerce may be one global village, but customers’ responses to price and ratings are far from uniform. The research allows app developers and marketers of goods, which are distributed online, such as online games, to adapt their pricing strategies to a country’s specific price sensitivity. The study further demonstrates how much managers need to lower price in each country to compensate for a 1% decrease of review valence to maintain an equal level of app popularity. This research thus empowers marketers to optimize price and boost ratings country by country.
In the competitive online marketplace, this research can help make the difference between propelling an app to a high ranking and millions of dollars or languishing with a low user base and poor sales.
From: Raoul Kübler, Koen Pauwels, Gökhan Yildirim, and Thomas Fandrich, “App Popularity: Where in the World Are Consumers Most Sensitive to Price and User Ratings?” Journal of Marketing, 83 (September).
Go to the Journal of Marketing