Does Online Chatter Really Matter? Dynamics of User-Generated Content and Stock Performance

User-Generated Content in online platforms or chatter for short provides a valuable source of consumer feedback on market performance of firms. This study examines whether chatter can predict stock market performance, which metric of chatter has the strongest relationship, and what the dynamics of the relationship are. The authors aggregate chatter (in the form of product reviews) from multiple websites over a four year period across six markets and fifteen firms. They derive multiple metrics of chatter (volume, positive chatter, negative chatter, and 5-start ratings) and use multivariate time series models to assess the short and long term relationship between chatter and stock market performance. They use three measures of stock market performance: abnormal returns, risk, and trading volume. The findings reveal that two metrics of chatter can predict abnormal returns with a lead of a few days. Of four metrics of chatter, volume shows the strongest relationship with returns and trading volume, followed by negative chatter. Whereas negative chatter has a strong effect on returns and trading volume with a short “wearin” and long “wearout,” positive chatter has no effect on these metrics. Negative chatter also increases volatility (risk) in returns. A portfolio analysis of trading stocks based on their chatter provides a return of 8% over and above normal market returns. In addition to the investing opportunities, the results show managers that chatter is an important metric to follow to gauge the performance of their brands and products. Because chatter is available daily and hourly, it 2 can provide an immediate pulse of performance that is not possible with infrequent sales and earnings reports. The fact that negative chatter is more important than positive, indicates that negatives are more diagnostic than positives. The negatives suggest what aspects of the products managers should focus on

Getting a grip on the saddle: Chasms or cycles?

The "saddle" is a sudden, sustained, and deep drop in sales of a new product, after a period of rapid growth following takeoff, followed by a gradual recovery to the former peak. The authors test for the generalizability of the saddle across products and countries and for three rival explanations: chasms in adopter segments, business cycles, and technological cycles. They model both boundary points of the saddle-start of the sales drop and recovery to the initial peak-using split-population models. Empirical analysis of historical sales data from ten products across 19 countries shows that the saddle is fairly pervasive. The onset of the saddle occurs in 148 product-country combinations. On average, the saddle occurs nine years after takeoff, at a mean penetration of 30%, and it lasts for eight years with a 29% drop in sales at its depth. The results support explanations of chasms and technological cycles for information/entertainment products and business cycles and technological cycles for kitchen/laundry products. The authors conclude with a discussion of the findings, contributions, and implications

Indirect Network Effects in New Product Growth

Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for, and hardware sales of, a new product. While prior work on indirect network effects in the economics and marketing literature is valuable, these literatures show two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance the prior literature credits to the chicken-and-egg paradox in these markets, the temporal pattern – which leads which? – of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows, among others, that: (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature; (2) in most

Volatility Spillovers Across User-Generated Content and Stock Market Performance

Volatility is an important metric of financial performance, indicating uncertainty or risk. So, predicting and managing volatility is of interest to both company managers and investors. This study investigates whether volatility in user-generated content (UGC) can spill over to volatility in stock returns and vice versa. Sources for user-generated content include tweets, blog posts, and Google searches. The authors test the presence of these spillover effects by a multivariate GARCH model. Further, the authors use multivariate regressions to reveal which type of company-related events increase volatility in user-generated content. Results for two studies in different markets show significant volatility spillovers between the growth rates of user-generated content and stock returns. Further, specific marketing events drive the volatility in user-generated content. In particular, new product launches significantly increase the volatility in the growth rates of user-generated content, which in turn can spill over to volatility in stock returns. Moreover, the spillover effects differ in sign depending on the valence of the user- generated content in Twitter. The authors discuss the managerial implications

Predicting the Path of Technological Innovation: SAW vs. Moore, Bass, Gompertz, and Kryder

C ompetition is intense among rival technologies, and success depends on predicting their future trajectory of performance. To resolve this challenge, managers often follow popular heuristics, generalizations, or "laws" such as Moore's law. We propose a model, Step And Wait (SAW), for predicting the path of technological innovation, and we compare its performance against eight models for 25 technologies and 804 technologiesyears across six markets. The estimates of the model provide four important results. First, Moore's law and Kryder's law do not generalize across markets; neither holds for all technologies even in a single market. Second, SAW produces superior predictions over traditional methods, such as the Bass model or Gompertz law, and can form predictions for a completely new technology by incorporating information from other categories on time-varying covariates. Third, analysis of the model parameters suggests that (i) recent technologies improve at a faster rate than old technologies; (ii) as the number of competitors increases, performance improves in smaller steps and longer waits; (iii) later entrants and technologies that have a number of prior steps tend to have smaller steps and shorter waits; but (iv) technologies with a long average wait time continue to have large steps. Fourth, technologies cluster in their performance by market

Bringing 'place' back in: regional clusters, project governance, and new product outcomes

We examine new product outcomes in the context of regional clusters. Based on past research on marketing relationships, clusters, and social networks, we propose that the overall configuration of a cluster helps promote particular governance practices among its members. These practices have distinct value-creating properties, and when they are brought to bear on a specific new product development project within a cluster, they promote performance outcomes like product novelty and speed to market. Ultimately, these performance effects are reinforced by the configuration of the cluster itself. In general, we propose that new product outcomes follow from complex interactions between a cluster's macro-level configuration and its micro-level governance processes. More broadly, our framework points to the importance of geographical variables and to the role of “place” in marketing decision-making

Flying to Quality: Cultural Influences on Online Reviews

Customers increasingly consult opinions expressed online before making their final decisions. However, inherent factors such as culture may moderate the criteria and the weights individuals use to form their expectations and evaluations. Therefore, not all opinions expressed online match customers’ personal preferences, neither can firms use this information to deduce general conclusions. Our study explores this issue in the context of airline services using Hofstede’s framework as a theoretical anchor. We gauge the effect of each dimension as well as that of cultural distance between the passenger and the airline on the overall satisfaction with the flight as well as specific service factors. Using topic modeling, we also capture the effect of culture on review text and identify factors that are not captured by conventional rating scales. Our results provide significant insights for airline managers about service factors that affect more passengers from specific cultures leading to higher satisfaction/dissatisfaction