Optimal Pricing and Launching Strategy for Quality-Differentiated Products in the Presence of Online Reviews

Online reviews substantially affect the launching strategies of quality-differentiated products as subsequent consumers could directly or indirectly infer the experience level of either version based on reviews. We construct a two-period model to investigate these strategies considering the sentiment ratio (i.e., consumers weigh more on negative reviews than positive ones). Our findings indicate that in the presence of online reviews, continuing to offer both versions benefits the seller, though discontinuing the previously introduced version may increase surplus for customers and society. We analytically derive the optimal launching strategies, and highlight the significance of the sentiment ratio, the quality and the quality-differentiated levels on the decision-making. Interestingly, the strategy of introducing the low-version followed by the high-version can be optimal under a low sentiment ratio. We also disclose the impact of online reviews on dynamic pricing. In addition, we reveal the conditions under which managers could maximize the value of online reviews. Finally, several extended cases are explored to verify the robustness of the main results. Our research not only contributes to the literature but also offers practical insights for managers to dynamically adjust prices and strategically alter the launching strategies considering the impact of online reviews.