Not everyone loves feedback, especially the negative kind. Online marketplaces love it all. Feedback, both good and bad supports reputation, and without a good rep, there is little trust from the buyer and seller base – which is a marketplace’s bread and butter.
Since eBay began in the mid-nineties, they were arguably the pioneers of the online review system. Now, “61% of customers read online reviews before making a purchase decision,” claims Econsultancy. eBay Founder Pierre Omidyar introduced the process within six months of launching the website where he explained the benefits of open communication in a letter to customers.
“Now, we have an open forum. Use it,” Omidyar wrote in February 1996. “Make your complaints in the open. Better yet, give your praise in the open. Let everyone know what a joy it was to deal with someone.”
eBay soon achieved a reputation for candid feedback. However, the introduction of these feedback systems in online marketplaces like Amazon and eBay also highlighted the flexibility of our trust as buyers. It seemed that once we were able to connect and contribute our pleasure or distaste somehow, it was safe to exchange funds with another anonymously.
“How is it that strangers who have never transacted with one another, and who may be thousands of miles apart, are willing to trust each other? Any transaction requires some level of trust between the buyer and seller, usually in the shadow of some institutional support like the law or other enforcement mechanisms,” writes Steven Tadelis in a paper titled “Reputation and Feedback Systems in Online Platform Markets” from UC Berkeley Haas School of Business.
Pierre Omidyar and eBay’s reputation mechanism arguably caused a shift in how buyers interacted online then and today. The company did it by cleverly utilising an online buyer’s newfound willingness to trust, by creating an environment of transparency using age-old commerce methods like the two-sided market; which is the core business model of most online marketplaces today.
These days feedback goes beyond the online marketplace and is prevalent in most consumer-based businesses. Its evolved from a single channel to multiple forms, including SMS which has become a leading source of survey, making it even easier to gather relevant data for customer management.
We can learn a lot about feedback from eCommerce and its ability to automate a kind of moderation within the heavy customer traffic produced in online marketplaces. Here are few facts that taught us a thing or two.
There are two types of feedback
One-sided and two-sided. One sided is mostly derived from one party, such as the buyer reviews on Amazon, while Air BnB uses two-sided where both tenant and owner can leave reviews on their experience. In the early days of this process, eBay introduced this idea of both buyers and sellers leaving commentary freely, but after 2008 their direction changed. Now, two-sided feedback is relegated to service-based forums like Airbnb and Uber, where both parties rely on each other. One-sided procedures put the onus the marketplace to oversee operations, viewing the product as the buyer and the seller as the client. eBay even initiated a protective scheme for their sellers/clients by introducing PowerSellers, “Buyers must wait at least seven days before leaving a negative or neutral Feedback for a PowerSeller who has been registered on eBay for at least 12 months,” states their website. One isn’t necessarily better than the other, at the end of the day, it’s about what’s healthiest for that particular forum.
It doesn’t affect the bottom line but something more important.
Surprisingly, feedback in online marketplaces does not affect revenue directly, “a one-point increase in reputation corresponds to a 4 cents increase in final price,” writes Tadelis. The one metric that is in fact undermined by a weak feedback system is buyer and seller trust. Trust is the backbone of any B2C e-commerce platform, and it can be difficult to attain, “Since there is no physical interaction with our customers, we rarely get to share traditional dialogue, build a personal rapport or shake their hand. Therefore, in case of marketplaces and e-commerce, on the whole, trust must be perceived and interpreted by the customer,” says WC Marketplace.
So does trust really increase revenue? Yes, its the motivation to turn a user into a customer and influence KPIs like growth rate which controls transactions between buyers and sellers. With growth comes higher liquidity, and that is the ultimate goal of all online marketplaces. Most of the time it starts with giving customers the opportunity to participate in the social environment created by e-commerce, feedback may be the most important tool they have in their belt.
There is an entire economic principle behind it.
The economics of reputation is legitimate and was touched on by “Luis M B Cabral, Professor of Economics at New York University, in his study, “The Economics of Trust and Reputation.” Cabral’s theory explores the benefits of investing in reputation, claiming that the better a brand’s reputation, the less they have to invest in building it. “According to Cabral, therefore, high trust and reputation can together help companies earn higher profits. Not only can a company increase the price of its products and services, but it can also decrease its expenses (the amount of money invested in reputation management),” writes Clear Logic.
The future of feedback
Feedback’s future looks more SMS based, a response to the growing impatience of tech-dexterous customers. Following up service with an SMS feedback survey is more rapid and proven to increase customer click-through rate, “The average open rate of a text message sits at about 99%, while email ranges from 28-33%. Next, to this, the click-through rates are vastly different. Include a link in your text message, and you will observe a CTR of about 36%. For email marketing, the CTR usually sits between 6-7%,” according to Business 2 Community.
Feedback aggregation is also on the table for upcoming developments, such as meta-platforms, which establish a culminative reputation score for a customer based on their interactions across e-commerce. There are companies out there currently attempting this idea by creating platforms to moderate reviews, so the marketplace doesn’t have to.
The art of reviewing has been around a long time; now the digital space has made it even easier to interact with each other, communication is only going to get more comfortable. As Tadelis notes, “It is apparent that the design of feedback and reputation systems will continue to play an important role in the broader area of market design as it applies to online marketplaces.”
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