An Empirical Study of 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 third-party 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