Good reputation badges on websites increase sales

Good reputation badges on websites increase sales

Online merchants that have earned a literal seal of customer approval for their website sell more product, while less reliable sellers who lack such an endorsement sell less, according to a new University of Iowa study.

However, researcher Weiguo Fan, professor of business analytics in the Tippie College of Business, says that earning the badge could be a double-edged sword. His study found that if the seller loses the badge, it could lead to a reduction in sales even greater than the gains from earning it.

Many online sales platforms use graphics of ribbons or medals on a sellers’ website to show that seller has earned a high rate of trust from previous customers. Using sales data from China’s Taobao.com e-commerce platform, the researchers found that earning a trustworthiness badge increases sales by 4.43% in the first 15 days. Keeping the badge leads to a 9.28% increase in sales in subsequent periods.

Meanwhile, losing a badge leads to a 7.97% decrease in sales, a negative impact that’s four times greater than the positive impact of earning a badge. Fan says that effect is most pronounced if the seller loses the badge 15 days after earning it the first time, which the consumer interprets as a more negative signal than not earning the badge at all.

Fan says the study shows reputation management is important for online merchants because consumers take seriously the trustworthiness of someone they may do business with but who they know nothing about.

The study, “Can Gold Medal Online Sellers Earn Gold? The Impact of Reputation Badges on Sales,” will be published in the Journal of Management Information Systems.

Contacts: 

Tom Snee, Office of Strategic Communication, 319-384-0010 (office), 319-541-8434 (cell)

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