Volume 12 (2020): Edizione 2 (November 2020)
The Reputation Economy

Hunting for “stars”, the icons of the reputation economy, is a prerequisite for survival in e-commerce in general and on sharing platforms in particular. The key to understanding the rise of reputation is trust, and the ability of a platform to provide this trust has become crucial in the past decade. Social media managers are now key players in marketing departments. One of their most important jobs is the careful curation of digital reputations. Marketers need to engage in diverse forms of reputation management and master several challenges in designing the right systems and utilizing reputation information in optimal ways. Engendering trust is more complex than gaining star ratings or positive reviews on owned or third-party platforms. How platforms are designed – in terms of how people can make bookings or orders and how users rate each other – is the key issue. It needs to be managed in a sophisticated way, especially in an era when topics such as racial and ethnic justice are key societal concerns.

In the old economy, reputation was considered an important but somewhat underestimated intangible asset. In the digital economy, the significance of reputation is expanded in scope. It enables the building of trust among “quasi-strangers” who engage in an economic transaction. Reputation scores, usually in the form of feedback, ranking and rating systems, facilitate the building of trust in the absence of a direct relationship between sellers and buyers. Concomitantly with the rise of social network sites and the proliferation of metrics and analytics of all kinds, the era of the “reputation economy” has dawned. A good reputation usually brings further good evaluations. On the other hand, a bad reputation can be a long-term setback for a company. Having no reputation means virtual non-existence in the eyes of today’s consumers. Professional reputation management is therefore a core task that makes a decisive contribution to the success of a company.

Today, virtually all e-commerce and sharing-economy platforms rely on star ratings or similar systems to build trust between anonymous buyers and sellers. However, star ratings can be quite tricky as a navigation aid. Platforms and users face several challenges in making sure that reputation systems remain credible. Skewed ratings and low rating variance, however, make it difficult for users to differentiate good from bad products and services. To tackle the issue of retaliation, most platforms use so-called simultaneous review schemes, only publishing ratings once both parties have committed. Furthermore, platforms may offer individuals the opportunity to leave text reviews as a complement to numeric ratings. A growing number of platforms also use complex technical systems and algorithms to automatically identify, mark or delete fake news. To maintain legitimacy, platform operators need to design reputation systems with minimal negative side effects and make crucial decisions about the level of control they seek to enact.

Research has documented racial or ethnic discrimination in online marketplaces, from labor markets to credit applications to housing. Platforms should therefore investigate how platform design decisions and algorithms can influence the extent of discrimination in a marketplace. By increasing awareness of this issue, managers can proactively address the problem. In many cases, a simple but effective change a platform can make is to withhold potentially sensitive user information, such as race and gender, until after a transaction has been agreed to. Further, platforms can use principles from choice architecture to reduce discrimination. For example, people have a tendency to use whatever option is set as the default. If Airbnb switched, for instance, ist default to instant book, requiring hosts to actively opt out of it, the company could reduce the scope for discrimination. It is important that discrimination and possible solutions are discussed transparently.

In a two-sided reputation system, it is in the interest of both buyers and sellers to be a good transaction partner. What sounds wonderful in theory is unfortunately not so easy to implement in reality. Reputation systems can have flaws due to factors such as reciprocity and retaliation, selective reviewing, and reputation inflation. These flaws cause the ratings collected on the platform to diverge from the actual experiences that marketplace participants are having. When reputation systems are not thoughtfully designed, it can be hard to distinguish between the “high quality” and “low quality” interactions. This makes it difficult to identify and remove bad actors and increases the chances of a “bad match”. Innovations in reputation system design, such as simultaneous reveal of information, review incentives, and greater reliance on private feedback, are making it easier to implement two-sided systems while avoiding the common pitfalls.

While most consumers routinely read online reviews to inform their purchase decisions, the number of consumers who actively post reviews is astonishingly small. To find their way in the review jungle, readers process the information presented very selectively and pursue different objectives. They use different informational cues for their own decision-making, which often reflects rather stable patterns. Writers, too, are often less interested in presenting their experience as objectively as possible as contextual factors play an important role. Similar to the review readers, they act neither uniformly nor without biases. Whether they take up the pen at all depends, among other things, on whether they represent a majority or minority opinion and what image of themselves they want to convey. A profound understanding of the motives of readers and writers is important to improve one’s own rating system and requires special skills in the management of online ratings. Managers need to find ways to convert more lurkers into posters to get a more realistic picture of the experiences.

Helpful reviews are like good movies or a good novel: if you’re hooked right away, you stay and remember. No matter how short, a review tells a story in much the same way as a novel. If you want to persuade, it should start with something dramatic and sensational or the key takeaway, rather than saving the best elements for the end. Narrative elements can change the way reviews influence people, and media literacy can go a long way. Social media influencers and professional reviewers should now also know that they are better off investing in creative writing or storytelling courses than choosing to analyze experiences factually. Further, software developers should learn to distinguish useful reviews from less helpful or relevant ones. With such skills, they can structure platforms in ways that make writing transporting, helpful, persuasive reviews as easy as possible and can develop algorithms that favor real and useful reviews.

For many travelers, the problem is familiar: You check out from Airbnb and your flight is not till later. So you have time to still enjoy a city, but you’re stuck with your luggage, which stops you from really taking advantage of it. At this point, Stasher comes in. Stasher is the world's first international luggage storage network. Customers in many cities, mainly in the UK and Europe but also in North America, can now easily and inexpensively book short-term storage for their luggage 24/7 on the platform via the app. What’s more, they can do this locally, and not only near a train station or airport, with the chance for a nice chat plus insider advice on the area.

What drives people’s decisions to share product and service experiences? Several studies show that a sender’s emotional arousal is a relevant factor for social sharing. Experimental studies by the Nuremberg Institute of Market Decisions (NIM) confirm that increased arousal is associated with higher levels of social sharing. The results show that the emotional state of arousal, which was determined by voice analysis, should be a relevant variable for marketing managers to estimate whether or not consumers will share their experiences in social media. At least for spoken reviews, there is also an indication that higher arousal can even increase persuasiveness. To increase the chances of sharing positive reviews of a product or service, marketing managers should charge their brands and products with emotions, such as joy or surprise, as these activate more than pure satisfaction.