Is Search Volume a Good Market Predictor? Product Quality and Predictive Performance of Search Volume

This study explains the varying predictive power of online search volume by examining the impact of perceived quality and quality uncertainty of products on search volume and demand. We develop hypotheses regarding the relationship among the quality variables, online search activities, and actual demand and test them in the empirical setting of the U.S. movie industry. We propose different observable variables to operationalize consumers’ perceived quality and quality uncertainty over a movie’s life-cycle. We relate the observable quality variables with revenue and online search volume in two systems of simultaneous equations: one for the opening week and the other for the subsequent weeks. We find that both quality and quality uncertainty are positively associated with the pre-launch search volume of movies whereas neither of them directly influences opening-week revenue. Similar findings are maintained in the analysis of post-launch weeks: weekly measurements of quality and quality uncertainty are positively associated with weekly search volume, but not with weekly revenue. These findings imply that systematic over-/under-prediction of market success may occur if we use an online search index without considering the effects of quality and quality uncertainty. This study also makes two methodological contributions. First, we propose a practical way of measuring quality-related constructs in the pre-launch period of movies when even professional reviews are not available. Second, we devise a novel method to convert Google search indices to cross-sectionally comparable search volume measures