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Research Exposes Role of Pricing on User Ratings

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A new study from the Harvard Business School proposes that price increases may have a negative effect on consumer ratings. This effect is seen in both high end and lower end of the market. This suggests that price can affect consumer perception of reputation on consumer rating platforms.

About the Study

A caveat to this study is that it’s a working paper. That means it is currently in draft form and not finalized. Nevertheless, the findings add to our understanding of pricing strategy and creating a positive reputation with consumers.

This research was conducted on restaurants on the Yelp Transactions Platform in the cities of New York City, Los Angeles, and Houston. They also used data from 2013 through January 2019.

Price and Ratings Effect is Across the Board

The researchers discovered that the average star ratings for high end restaurants were similar to the average ratings of low end restaurants. High end restaurants received an average score of 3.6 while restaurants at the cheapest levels received an average score of 3.4.

One would normally thing that high end restaurants would receive higher ratings in general than cheaper restaurants because of the perception of higher quality. But that doesn’t seem to be the case.

The researchers suggest:

“We interpret this as suggestive evidence that ratings area function of both quality and price.”

That means that a cheaper restaurant that has a four star rating isn’t necessarily better than a high end restaurant with a three star rating.

The rating is a reflection of the perceived quality for the price paid.

The Takeaway:

What this may mean to businesses is that there may be a relationship between the perception of value a customer receives for the price paid and that the value will be reflected in higher ratings if the ratio of value and price are favorable.

Price Increases May Affect Ratings

According to the research, it was discovered that price increases led to decreases in ratings.

This is how they described the effect:

“…we find that increases in prices lead to lower ratings. A 1% increase in price leads to a 0.05-0.14 decrease in rating on a scale of 1 to 3 (the scale used for delivery
purchases), which is approximately 2.5%-5% decrease for the average feedback.

This effect becomes increasingly important when considering that the average price change is about 3%-9%.”

The researchers stressed that the rating changes were not small changes but were significant to the point that they could have an effect on a businesses reputation.

According to the research:

“These results are consistent with the cross-sectional evidence, and suggest that higher prices are in fact affecting a restaurant’s reputation, and that these effects are both statistically and economically significant.”

Why Ratings May Be Affected by Price

The research reviewed the data by splitting the consumer ratings between first-time buyers and longtime patrons.

What was discovered is that consumers who have not previously purchased from the restaurant tended to be affected by higher prices than consumers who had purchased there before.

This implied that new consumers who don’t already have an opinion will more likely factor the higher price as part of their rating than a return customer who has eaten there before.

An additional insight is that, because return customers don’t lower their ratings because of price increases, it could mean that lower ratings are not given as “punishment” for raising the prices, since the ratings aren’t affected to the same degree as the ratings of new customers.

The researchers wrote:

“We argue that ratings are negatively affected by price-level because consumers adjust their feedback based on prices.

We find that the effect is larger and generally more statistically significant for users who are ordering from a restaurant for the first time relative to people who have ordered before.

This suggests that consumers indeed respond to price levels rather than use low ratings as punishment for raising prices.

This finding also supports the notion that prices are, to some extent, used as a reference point or a signal to set users expectations for quality, as users who have not previously ordered from that business are likely to have the least prior knowledge of quality.”

The Trap of High Prices and Low Ratings

For businesses, the researchers suggest that price increases can carry a negative effect. The increased price can impact sales volume and affect the business reputation through lower ratings.

For consumers, the researchers argue that this may cause a lower user experience since the company’s ratings may not accurately reflect their reputation with consumers, it may simply reflect their reputation with new consumers.

Or, the high ratings may reflect their historic popularity with customers that was gained at a lower price point.

The researchers also suggest that this information might be useful for sites that display user generated ratings, that it may be useful to device a way to show different ratings based on whether they were given by a new or repeat customer.

Presumably the rating of a repeat customer might more accurately reflect the true reputation of a company.

Here’s what the research paper says:

“Our results suggest a trade-off to increasing prices—in addition to reducing immediate sales, price increases harm firm reputation.

…If consumers are unable to unpack the impact of historic prices on rating, then this puts a wedge between true quality and firm’s reputation.”

Trade-off of Introductory Prices and Long Term Ratings

The researchers warned that unscrupulous sellers might try to game their ratings by initially offering low prices.

Because consumers take price into consideration of the value they receive, the lower price will positively affect the ratings and result in better ratings and more sales which in turn feeds into additional higher ratings.

The researchers feel that this low price/high ratings feedback loop could be negatively offset in the long run by lower ratings from offering the product at higher prices later on.

This is how they put it:

“…strategic sellers might be tempted to take advantage of misguided consumers by setting low introductory prices. Initial low prices can mechanically boost ratings and allow some firms to eventually take advantage of their good reputation by increasing sales and prices.

More generally, our results point to a trade-off —price increases don’t just reduce present demand, but can potentially harm future demand by decreasing firm reputation.

We expect this negative effect to attenuate as the number of reviews grows larger.”

Explanation are Elusive

The researchers stated that they discovered consistent cause and effect in ratings and price increases. But they admitted that they did not have the data to accurately to explain the role of expectations on ratings.

The research paper concluded:

Lastly, in this setting the mechanism driving the adverse impact of prices on ratings is somewhat unclear.

…Unfortunately, we are unable to fully disentangle these to mechanisms in our setting. We believe that the effect is driven by a mixture of these two forces: On the one hand, we do find that repeating users are affected by price, which implies that deviations from expectations are not the sole mechanism driving the results.

On the other hand, new consumers seem to be more affected, so expectations seem to play some role.”

The research paper, which is a working paper, brings up some interesting information that may be useful to businesses that are considering a pricing strategy and are concerned about user ratings on platforms. This is of particular concern local type businesses but also has implications for businesses whose products are rated by users on sites like Amazon.

Citation

Download the Report: The Impact of Price on Firm Reputation (PDF)

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OpenAI Introduces ChatGPT Plus with Monthly Subscription of $20

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Open AI - Chat GPT

OpenAI, the leading artificial intelligence research laboratory, has launched a new product – ChatGPT Plus. The new product is an advanced version of its previous language model, ChatGPT, and is available for a monthly subscription of $20. The company aims to provide a more sophisticated and efficient conversational AI tool to its users through this new product.

ChatGPT Plus is a state-of-the-art language model that uses advanced deep learning algorithms to generate human-like responses to text inputs. The model has been trained on a massive corpus of text data, allowing it to generate coherent and contextually relevant responses. The model is designed to handle a wide range of conversational topics and can be integrated into various applications, such as chatbots, customer support systems, and virtual assistants.

One of the main advantages of ChatGPT Plus over its predecessor, ChatGPT, is its ability to generate responses in a more human-like manner. The model has been fine-tuned to incorporate more advanced language processing techniques, which enable it to better understand the context and tone of a conversation. This makes it possible for the model to generate more nuanced and appropriate responses, which can greatly improve the user experience.

In addition to its advanced language processing capabilities, ChatGPT Plus also offers improved performance in terms of response generation speed and efficiency. The model has been optimized to run on faster hardware and has been fine-tuned to generate responses more quickly. This makes it possible for the model to handle a larger volume of requests, making it an ideal solution for businesses with high traffic websites or customer support centers.

The monthly subscription fee of $20 for ChatGPT Plus makes it an affordable solution for businesses of all sizes. The company has designed the pricing model in such a way that it is accessible to businesses of all sizes, regardless of their budget. This makes it possible for small businesses to take advantage of advanced conversational AI technology, which can greatly improve their customer engagement and support.

OpenAI has also made it easy to integrate ChatGPT Plus into various applications. The company has provided a comprehensive API that allows developers to easily integrate the model into their applications. The API supports a wide range of programming languages, making it possible for developers to use the technology regardless of their preferred programming language. This makes it possible for businesses to quickly and easily incorporate conversational AI into their operations.

In conclusion, OpenAI’s launch of ChatGPT Plus is a significant development in the field of conversational AI. The new product offers advanced language processing capabilities and improved performance, making it an ideal solution for businesses of all sizes. The affordable pricing model and easy integration make it accessible to businesses of all sizes, and the advanced language processing capabilities make it possible for businesses to improve their customer engagement and support. OpenAI’s ChatGPT Plus is set to revolutionize the conversational AI industry and bring advanced technology within the reach of businesses of all sizes.

Visit OpenAI.com to read more and to get the latest news about ChatGPT.

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What can ChatGPT do?

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ChatGPT Explained

ChatGPT is a large language model developed by OpenAI that is trained on a massive amount of text data. It is capable of generating human-like text and has been used in a variety of applications, such as chatbots, language translation, and text summarization.

One of the key features of ChatGPT is its ability to generate text that is similar to human writing. This is achieved through the use of a transformer architecture, which allows the model to understand the context and relationships between words in a sentence. The transformer architecture is a type of neural network that is designed to process sequential data, such as natural language.

Another important aspect of ChatGPT is its ability to generate text that is contextually relevant. This means that the model is able to understand the context of a conversation and generate responses that are appropriate to the conversation. This is accomplished by the use of a technique called “masked language modeling,” which allows the model to predict the next word in a sentence based on the context of the previous words.

One of the most popular applications of ChatGPT is in the creation of chatbots. Chatbots are computer programs that simulate human conversation and can be used in customer service, sales, and other applications. ChatGPT is particularly well-suited for this task because of its ability to generate human-like text and understand context.

Another application of ChatGPT is language translation. By training the model on a large amount of text data in multiple languages, it can be used to translate text from one language to another. The model is able to understand the meaning of the text and generate a translation that is grammatically correct and semantically equivalent.

In addition to chatbots and language translation, ChatGPT can also be used for text summarization. This is the process of taking a large amount of text and condensing it into a shorter, more concise version. ChatGPT is able to understand the main ideas of the text and generate a summary that captures the most important information.

Despite its many capabilities and applications, ChatGPT is not without its limitations. One of the main challenges with using language models like ChatGPT is the risk of generating text that is biased or offensive. This can occur when the model is trained on text data that contains biases or stereotypes. To address this, OpenAI has implemented a number of techniques to reduce bias in the training data and in the model itself.

In conclusion, ChatGPT is a powerful language model that is capable of generating human-like text and understanding context. It has a wide range of applications, including chatbots, language translation, and text summarization. While there are limitations to its use, ongoing research and development is aimed at improving the model’s performance and reducing the risk of bias.

** The above article has been written 100% by ChatGPT. This is an example of what can be done with AI. This was done to show the advanced text that can be written by an automated AI.

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Google December Product Reviews Update Affects More Than English Language Sites? via @sejournal, @martinibuster

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Google’s Product Reviews update was announced to be rolling out to the English language. No mention was made as to if or when it would roll out to other languages. Mueller answered a question as to whether it is rolling out to other languages.

Google December 2021 Product Reviews Update

On December 1, 2021, Google announced on Twitter that a Product Review update would be rolling out that would focus on English language web pages.

The focus of the update was for improving the quality of reviews shown in Google search, specifically targeting review sites.

A Googler tweeted a description of the kinds of sites that would be targeted for demotion in the search rankings:

“Mainly relevant to sites that post articles reviewing products.

Think of sites like “best TVs under $200″.com.

Goal is to improve the quality and usefulness of reviews we show users.”

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Google also published a blog post with more guidance on the product review update that introduced two new best practices that Google’s algorithm would be looking for.

The first best practice was a requirement of evidence that a product was actually handled and reviewed.

The second best practice was to provide links to more than one place that a user could purchase the product.

The Twitter announcement stated that it was rolling out to English language websites. The blog post did not mention what languages it was rolling out to nor did the blog post specify that the product review update was limited to the English language.

Google’s Mueller Thinking About Product Reviews Update

Screenshot of Google's John Mueller trying to recall if December Product Review Update affects more than the English language

Screenshot of Google's John Mueller trying to recall if December Product Review Update affects more than the English language

Product Review Update Targets More Languages?

The person asking the question was rightly under the impression that the product review update only affected English language search results.

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But he asserted that he was seeing search volatility in the German language that appears to be related to Google’s December 2021 Product Review Update.

This is his question:

“I was seeing some movements in German search as well.

So I was wondering if there could also be an effect on websites in other languages by this product reviews update… because we had lots of movement and volatility in the last weeks.

…My question is, is it possible that the product reviews update affects other sites as well?”

John Mueller answered:

“I don’t know… like other languages?

My assumption was this was global and and across all languages.

But I don’t know what we announced in the blog post specifically.

But usually we try to push the engineering team to make a decision on that so that we can document it properly in the blog post.

I don’t know if that happened with the product reviews update. I don’t recall the complete blog post.

But it’s… from my point of view it seems like something that we could be doing in multiple languages and wouldn’t be tied to English.

And even if it were English initially, it feels like something that is relevant across the board, and we should try to find ways to roll that out to other languages over time as well.

So I’m not particularly surprised that you see changes in Germany.

But I also don’t know what we actually announced with regards to the locations and languages that are involved.”

Does Product Reviews Update Affect More Languages?

While the tweeted announcement specified that the product reviews update was limited to the English language the official blog post did not mention any such limitations.

Google’s John Mueller offered his opinion that the product reviews update is something that Google could do in multiple languages.

One must wonder if the tweet was meant to communicate that the update was rolling out first in English and subsequently to other languages.

It’s unclear if the product reviews update was rolled out globally to more languages. Hopefully Google will clarify this soon.

Citations

Google Blog Post About Product Reviews Update

Product reviews update and your site

Google’s New Product Reviews Guidelines

Write high quality product reviews

John Mueller Discusses If Product Reviews Update Is Global

Watch Mueller answer the question at the 14:00 Minute Mark

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