Abstract
This research explores how consumer electronic word of mouth (eWOM) influences a firm's strategic emphasis, focusing on the distinct effects of positive and negative eWOM on value appropriation (e.g., advertising) versus value creation (e.g., R&D). Analyzing over 33 million social media posts covering 39 corporate brands from 2010 to 2020, the authors find that positive consumer eWOM influences firms to prioritize a strategic emphasis on value appropriation, while negative consumer eWOM is associated with a strategic emphasis on value creation. These effects are moderated by product category, market competition, and industry instability. Firms in hedonic categories have attenuated responses to both negative eWOM and positive eWOM, whereas utilitarian product firms have larger strategic emphasis shifts in response to consumer eWOM. Competitive and unstable markets further amplify the effects of eWOM, leading firms to adjust their strategies more aggressively. These findings offer valuable insights for managers to tailor their strategies based on consumer eWOM, product types, and market dynamics.
Keywords
In a marketplace where over 5.1 billion consumers are connected to social media platforms worldwide (Statista 2024), consumer electronic word of mouth (eWOM) has emerged as a powerful influence on consumers, products, and firms. Thus, existing research streams have explored the impact of consumer eWOM on product-related outcomes such as sales (Babić Rosario et al. 2016) as well as consumer decision-making (Deighton and Kornfeld 2009; Kim and Hanssens 2017). Additionally, existing research highlights the use of consumer eWOM as a source of market intelligence (Du et al. 2021; Li and Li 2013) for firm-level decisions such as pricing (De Maeyer 2012) or distribution (Chintagunta, Gopinath, and Venkataraman 2010). Thus, consumer eWOM has proven to be an important driver of both consumer outcomes and firm strategic decisions in today's digital world.
In addition to the academic findings, real-world examples reveal how companies are increasingly leveraging eWOM from individual consumers to shape firm strategies. For instance, Plaid, a fintech company, integrates feedback from eWOM from individual social media users to refine its R&D efforts and better align its offerings with consumer preferences (Sprout Social 2023). Similarly, Crocs, a footwear company, increased its advertising investments after receiving significant positive eWOM from consumers online (Holman 2023). Furthermore, over 90% of business leaders acknowledge the significance of eWOM in guiding strategic decisions (Gomez 2023). While firms often use consumer eWOM insights for tactical decisions, such as launching promotions or adjusting service policies (Verma and Yadav 2021), it is still not fully understood how firms incorporate consumer eWOM into their long-term strategic planning.
This research addresses this gap by examining how positive and negative consumer eWOM differentially influences a firm's strategic emphasis through the lens of the value creation and value appropriation (VCA) framework. According to this framework, firms create value through the production, delivery, and innovation (e.g., R&D) of offerings, whereas value is appropriated by extracting profits through the communication (e.g., advertising) of that value in the marketplace (Mizik and Jacobson 2003). As such, value creation involves the development of new or improved products and services that meet customer needs, while value appropriation focuses on capturing the benefits of such created value through effective market positioning and promotion. Even though both value creation and value appropriation are key aspects of a firm's marketing strategy, firms have limited resources and face trade-offs in resource allocation, requiring strategic choices between investing in value creation (e.g., R&D) versus value appropriation (e.g., advertising) based on the feedback they receive from the market. These resource allocation decisions are critical, as they significantly impact the firm's growth, risk, and financial performance (Han, Mittal, and Zhang 2017; Josephson, Johnson, and Mariadoss 2016; Mizik and Jacobson 2003).
Building on the VCA framework, we argue that positive consumer eWOM, which reflects customer satisfaction and endorsement, signals to firms that resources should be prioritized for value appropriation, primarily to capitalize on favorable market perceptions and extract rents from current offerings in the marketplace. Conversely, negative consumer eWOM highlights unmet needs or product deficiencies, prompting firms to prioritize value creation and redirect resources to the improvement and development of new offerings. These strategic shifts underscore the importance of dynamically balancing value appropriation and value creation to maintain a competitive edge in a rapidly evolving marketplace. We test our conceptual framework outlined in Figure 1 on a large-scale dataset of 33 million eWOM posts covering 39 corporate brands over the period from 2010 to 2020, combined with quarterly accounting and financial data from Compustat. Using econometric models that address endogeneity concerns, we provide empirical evidence supporting our hypotheses.
Conceptual Model
Our research makes important contributions to the eWOM and marketing strategy literature. First, we contribute to the eWOM literature by demonstrating how consumer eWOM serves as a key influencer of firm-level strategic decisions. Previous research has predominantly focused on consumer-level outcomes such as review helpfulness (Yin, Bond, and Zhang 2014), purchase intentions (Baker, Donthu, and Kumar 2016), and consumer attitudes (Rocklage and Fazio 2020), or firm-level outcomes tied to consumer behaviors, such as product sales (Babić Rosario et al. 2016; Marchand, Hennig-Thurau, and Wiertz 2017; Nguyen and Chaudhuri 2019; You, Vadakkepatt, and Joshi 2015) and stock returns (Borah et al. 2022; Borah and Tellis 2016; Colicev et al. 2018; Nguyen, Calantone, and Krishnan 2020). While some literature has examined the effects of consumer eWOM on firm strategic decisions such as pricing (e.g., De Maeyer 2012) or distribution (e.g., Chintagunta, Gopinath, and Venkataraman 2010), limited knowledge exists regarding how consumer eWOM influences firms’ strategic decisions and relative strategic emphasis.
This study leverages the VCA framework to address this gap by examining how firms navigate resource trade-offs when adjusting their strategic focus on value appropriation versus value creation in response to consumer eWOM. Specifically, we are the first to demonstrate the differential effects of positive and negative consumer eWOM on a firm's strategic emphasis on value appropriation versus value creation. We show that positive eWOM encourages firms to prioritize resources toward value appropriation, such as advertising, to capitalize on and extract value from favorable consumer sentiment. Conversely, negative consumer eWOM influences firms to prioritize resources toward value creation, such as R&D, to address product deficiencies or unmet customer needs and create new opportunities to provide value to customers in the marketplace. This nuanced understanding provides critical insights into how firms dynamically balance value appropriation and value creation in response to market feedback given limited resources.
Second, this research extends the marketing strategy literature by examining how the external signal of consumer eWOM influences a firm's strategic emphasis. While previous research has often focused on value appropriation and/or value creation in isolation (Chakravarty and Grewal 2011; Kashmiri, Gala, and Nicol 2019), there is limited research examining the strategic trade-offs firms make between these two functions (e.g., Cheng et al. 2022; Hudson and Morgan 2023; Kim, Xiong, and Kim 2018). In reality, firms have limited resources and must make strategic trade-offs in resource allocation. Therefore, our examination of the relative prioritization and strategic emphasis on value appropriation versus value creation provides a more comprehensive view of strategic decision-making.
Relatedly, prior research has primarily explored internal factors influencing firm resource allocation, such as executive compensation (Currim, Lim, and Kim 2012; Shankar and Francis 2023), top management characteristics (Hudson and Morgan 2023; Kim, Xiong, and Kim 2018), and financial metrics (Josephson, Johnson, and Mariadoss 2016; Kurt and Hulland 2013; Sridhar, Narayanan, and Srinivasan 2014). While more recent studies have examined external influences of strategic resource allocation, such as analysts’ earnings forecasts (Chakravarty and Grewal 2011, 2016) and shareholder sentiment (Mian, Sharma, and Gul 2018; Wies et al. 2019), these studies focus primarily on influence from financial markets. Thus, the impact of consumer-level factors on firms’ strategic decisions and strategic emphasis has remained underexplored. This research advances our understanding by examining how consumer-level eWOM sentiment influences a firm's strategic emphasis on value appropriation versus value creation.
Third, this research sheds light on the moderating factors that influence the relationship between consumer eWOM and a firm's strategic emphasis. Product category, market competitiveness, and industry instability are situational characteristics within the external environment that either amplify or attenuate the influence of consumer eWOM on a firm's strategic focus. In some contexts, these factors heighten the salience of consumers’ voices via eWOM, while in others, eWOM may be less impactful. These insights enrich both academic discussions and managerial practices by providing a more holistic framework for how firms can effectively navigate strategic decision-making in dynamic, consumer-centric markets.
In summary, our findings offer valuable insights for managers, demonstrating that consumer eWOM sentiment is a key driver of a firm's strategic emphasis between value appropriation and value creation and that the impact of consumer eWOM is contingent on the firm's market context.
Conceptual Framework and Hypotheses
A Review of Relevant Literature and Research Gaps
Firm strategic emphasis
According to the VCA framework, firms must balance their resources between value appropriation and value creation. Determining the strategic emphasis and allocation of resources toward value appropriation versus value creation is a key decision for firms, as it directly impacts their financial performance and long-term competitive advantage (Mizik and Jacobson 2003). Value appropriation activities, such as advertising, focus on capturing the value of the firm's existing products and market position. This involves communicating value to stakeholders, defending market share, and enhancing customer loyalty (Mehta, Chen, and Narasimhan 2008; Mizik and Jacobson 2003). Reinforcing brand equity and reducing perceived risks are essential to appropriating value, since appropriating value involves the firm focusing on extracting value from the marketplace and lengthening the time it can rely on existing competitive advantages in the marketplace (Mizik and Jacobson 2003). In contrast, value creation involves the generation of new products, innovations, and competitive advantages (Xiong and Bharadwaj 2014). Successful value creation activities foster market expansion, meet new customer needs, enhance firm profitability by delivering new customer value, and create new competitive advantages for the firm (Chandy and Tellis 1998; Sorescu and Spanjol 2008). While value appropriation focuses on capitalizing on existing offerings and market positioning, value creation creates new value and competitive advantages by advancing the firm's product offerings and ensuring long-term market relevance. Thus, the strategic emphasis a firm places on value appropriation versus value creation reflects its broader orientation, either toward appropriating value from existing offerings or creating new value through new offerings.
Drivers of firm strategic emphasis
While existing research has examined the outcomes of a firm's strategic emphasis or its value appropriation and value creation activities, our research focuses on factors that influence a firm's relative strategic emphasis. Based on our literature review summarized in Table 1, we categorize the drivers of value appropriation/value creation and firm strategic emphasis into internal and external sources of influence. Most of the existing research focuses on internal sources that drive a firm's strategic emphasis and resource allocation decisions. These internal influences primarily fall into two categories. First, top management team characteristics, such as executive compensation (Currim, Lim, and Kim 2012), executive diversity (Hudson and Morgan 2023), and management hubris (Kim, Xiong, and Kim 2018), impact a firm's strategic emphasis and resource allocations. Second, firm characteristics, including financial slack (Josephson, Johnson, and Mariadoss 2016), financing structure (Kurt and Hulland 2013), and firm value (Sridhar, Narayanan, and Srinivasan 2014), are key influencers.
Research on the Drivers of Firm Strategic Emphasis.
Notes: VA = value appropriation; VC = value creation. Many studies use advertising and R&D as outcomes. Advertising is classified as value appropriation and R&D is classified as value creation.
Externally, prior research has primarily examined influences from the financial markets, such as investor expectations (Chakravarty and Grewal 2011, 2016) or investor sentiment (Mian, Sharma, and Gul 2018; Wies et al. 2019). Furthermore, while the majority of the literature has focused on examining drivers of value creation or value appropriation activities individually, few studies explore the factors that influence the relative strategic emphasis between them (e.g., Hudson and Morgan 2023; Kim, Xiong, and Kim 2018; Shankar and Francis 2023). Although these studies provide valuable insights into the key influences of a firm's strategic emphasis and resource allocations, prior research has largely neglected the potential influence of one of the primary stakeholders: customers. Thus, this study seeks to fill that gap by examining how customer-based external factors, such as consumer eWOM sentiment, influence a firm's strategic emphasis.
Conceptual Development
Our conceptual framework, grounded in the VCA framework, posits that firms strategically allocate resources between value appropriation activities (e.g., advertising) and value creation activities (e.g., R&D), with consumer eWOM sentiment acting as a critical external factor influencing these decisions. We argue that positive consumer eWOM signals customer satisfaction and strong market fit, encouraging firms to prioritize resources toward value appropriation activities, such as advertising, to extract the value generated by existing offerings in the marketplace. In contrast, negative consumer eWOM highlights unmet customer needs or product deficiencies, prompting firms to prioritize value creation activities, such as R&D, to create new value, improve their offerings, and generate new competitive advantages. Additionally, our framework examines the moderating effects of situational factors such as product category, market competition, and industry instability, which either amplify or attenuate the impact of consumer eWOM on resource allocation, thereby shaping how firms prioritize value appropriation (e.g., advertising) versus value creation (e.g., R&D) in response to consumer sentiment.
Impact of positive eWOM
In today's digital landscape, consumer eWOM plays a pivotal role in shaping firm strategies by providing feedback via consumer sentiment. As eWOM offers insights into customer preferences and perceptions, it serves as a significant signal for firms to align their strategic emphasis and resource allocations with market opportunities. Positive consumer eWOM signals consumer satisfaction and a strong product-market fit (Colicev, Kumar, and O’Connor 2018; Zablocki, Makri, and Houston 2019), suggesting that current offerings are meeting market needs. In response, firms may shift resources toward market expansion mechanisms and value extraction, rather than dedicating resources toward creating new value via new offerings. By shifting resources to value appropriation, firms can focus on generating awareness and reinforcing the value of existing offerings that are in demand in the marketplace, instead of developing new offerings that may carry greater uncertainty in terms of their ability to provide value. For example, appropriating value by leveraging positive eWOM, through activities such as advertising, enables firms to expand into untapped markets and build trust with consumers, helping solidify their market position (Hollebeek and Macky 2019).
Moreover, firms must consider financial risks when allocating resources. When consumer needs are being met, as evidenced by positive consumer eWOM, investing in value appropriation to communicate product benefits poses less financial risk compared with the higher costs and uncertainty associated with value creation (Flammer and Bansal 2017). Value appropriation also capitalizes on an established product-market fit, making it a safer investment than creating new value via new offerings with uncertain returns. Favorable consumer sentiment can also encourage competitors to imitate successful offerings. Positive eWOM signals market success but also creates competitive pressure as rivals seek to replicate what works. In response, firms may shift resources toward value appropriation activities like advertising as a defense mechanism to reinforce product value, protect brand equity, and establish barriers to imitation (Lieberman and Asaba 2006; Mizik and Jacobson 2003). Therefore, by prioritizing resources toward value appropriation in the presence of positive consumer eWOM, firms can bolster relationships with existing customers, communicate the distinct benefits of their offerings, and attract new customers (De Vries, Gensler, and Leeflang 2017; Hollebeek and Macky 2019). Thus, we hypothesize:
Impact of negative eWOM
In contrast, negative consumer eWOM often exposes areas of customer dissatisfaction with a firm's offerings, posing a significant threat to one of the firm's most valuable intangible assets: its marketplace reputation (Colicev, Kumar, and O’Connor 2018; Srivastava, Fahey, and Kurt Christensen 2001; Zablocki, Makri, and Houston 2019). To mitigate the potential damage and restore consumer confidence, firms are likely to shift their strategic emphasis to prioritize value creation rather than value appropriation by increasing value creation investments, signaling a commitment to improving product quality and addressing consumer concerns. Negative feedback has been shown to induce firms to take corrective actions (Eggers and Suh 2019). For example, it has been shown that negative events like product recalls (Ni et al. 2023) can induce increased innovation. Unlike value appropriation, which primarily reinforces existing value, value creation allows firms to tackle the root causes of negative eWOM by innovating and differentiating their offerings (James, Leiblein, and Lu 2013). This dedication to solving the root causes of the negative feedback is a form of in-depth learning by the firm (Ni et al. 2023). As such, the firm is prompted to create new value by developing distinctive solutions that resolve the underlying issues highlighted by negative consumer eWOM. These issues often highlight product deficiencies or unmet customer needs, and solving them makes the firm more resilient to future negative feedback (Mudambi and Swift 2014). By investing in value creation, firms can shift from focusing on appropriating value and managing perceptions to creating new value by learning from the feedback to meet customer expectations and prevent further reputation damage.
Second, negative consumer eWOM can expose gaps in a firm's core competencies (Dawar and Pillutla 2000; Du et al. 2021). While value appropriation activities may offer a short-term remedy by managing brand perception and communicating existing value, they do not solve the fundamental weaknesses exposed by negative eWOM. In contrast, value creation provides a more sustainable, long-term solution, enabling firms to strengthen their core offerings and foster future innovation, which can lead to enhanced customer satisfaction and increased firm value over time (Rubera and Kirca 2017).
Third, negative eWOM signals that customer needs are not being met and that competitors may be offering superior alternatives. Consumer eWOM has been shown to be a very valuable source of intelligence about customer needs (Timoshenko and Hauser 2019). Thus, this pressure to stay competitive may compel firms to adopt a greater tolerance for risk—a characteristic commonly associated with value creation activities (Flammer and Bansal 2017). Therefore, firms may shift resources from less risky value appropriation activities to value creation, a higher-risk but higher-reward activity. This shift allows them to develop new capabilities or products that can restore their competitive advantage and challenge the market position of rival firms (Sorescu and Spanjol 2008). By focusing on value creation, firms can not only address immediate customer concerns but also position themselves more favorably in the long run, creating a pathway for future growth and differentiation. Therefore, we hypothesize:
Moderating Effects of Product Category, Market Competition, and Industry Instability
In our conceptual framework, external factors such as product category, market competition, and industry instability influence the impact of consumer eWOM on firm strategic resource allocations. These factors either amplify or attenuate the impact of consumer eWOM, shaping how firms prioritize value appropriation versus value creation in response to consumer feedback.
Product category
From a VCA perspective, the nature of a firm's offerings—whether hedonic or utilitarian—plays a critical role in how firms react to the market and allocate resources between value appropriation and value creation. Hedonic offerings are linked to pleasure, enjoyment, and emotional experiences, while utilitarian offerings are associated with practicality, functionality, and objective performance (Dhar and Wertenbroch 2000; Zablocki, Makri, and Houston 2019). Due to the emotional richness of hedonic products, eWOM about these offerings tends to be more subjective, driven by personal tastes and affective reactions (Babin, Darden, and Griffin 1994). In contrast, eWOM for utilitarian products typically contains more factual, objective information related to product performance (Pan and Zhang 2011). This differentiation in consumer feedback has important implications for how firms respond strategically to consumer eWOM.
For firms offering hedonic products, consumer feedback is often highly individualized, reflecting personal tastes and emotional responses (Babin, Darden, and Griffin 1994). As such, positive consumer eWOM provides less concrete guidance on performance improvements or market expansion, resulting in increased risk from using this eWOM as a decision tool. Lower confidence and increased risk lead firms to be more cautious about shifting resources toward value appropriation in response. Consequently, firms in hedonic categories may be less inclined to emphasize value appropriation over value creation when reacting to positive consumer eWOM. In contrast, firms offering utilitarian products are likely to treat positive consumer eWOM as a reliable indicator of product quality and customer satisfaction. Since eWOM for utilitarian offerings tends to focus on objective features and performance (Pan and Zhang 2011), firms interpret positive feedback as an assurance that their products meet consumer expectations. This belief makes firms more confident in their decision to shift resources to value appropriation, reinforcing this positive perception in the broader market to capture existing value. As a result, the strategic decision to prioritize value appropriation is likely to be greater in magnitude due to the confidence in the consumer eWOM.
On the other hand, negative eWOM for utilitarian products provides firms with actionable and credible information about specific shortcomings in product performance. The objective nature of such eWOM motivates firms to focus on value creation activities, such as R&D, to address the issues raised in consumer feedback, improve product functionality, and prevent further dissatisfaction (Rocklage and Fazio 2020).
More objective eWOM facilitates greater organizational learning and reduces the likelihood of repeated failure. Conversely, for hedonic products, negative eWOM may be perceived as less reliable or actionable, as it often reflects personal preferences and emotional responses rather than clear performance deficits (Zablocki, Makri, and Houston 2019). As a result, firms are less able to learn about consumer preferences effectively from negative eWOM. Consequently, negative eWOM for firms in hedonic categories may offer less actionable information, making it less influential in shifting a firm's strategic emphasis on value creation activities. Thus, we hypothesize:
Market competitiveness
In highly competitive markets, where numerous firms are vying for a limited number of customers, the allocation of resources between value appropriation and value creation becomes even more essential. Firms in such markets must be particularly responsive to consumer eWOM because their competitive advantage is less distinctive and more vulnerable to imitation (Lampel and Shamsie 2000). Positive consumer eWOM serves as a signal of consumer satisfaction and an opportunity to capture market share. In highly competitive environments, where product offerings are often homogeneous and there is significant noise from competitors (Porter 1980), firms are incentivized to invest more heavily in value appropriation to extract the value created by positive sentiment and ensure that their brand remains top-of-mind among consumers. Value appropriation activities help firms not only to reinforce their market position but also to protect themselves from competitors who could capitalize on any lapse in brand visibility. In such markets, maintaining visibility is critical for differentiation, making value appropriation an essential response to positive consumer eWOM.
Conversely, negative consumer eWOM poses a greater threat in highly competitive markets, as consumers face lower switching costs and have a wider array of alternatives (Seiders et al. 2005). From a VCA perspective, firms must respond aggressively to negative feedback by focusing on value creation to resolve product-related issues and restore customer confidence. In such environments, the cost of inaction is heightened, as dissatisfied customers can easily switch to competitors offering superior alternatives. Therefore, firms in competitive markets are under greater pressure to create new value and differentiate their offerings in response to negative consumer eWOM, as failure to do so could result in losing market share to more agile competitors (Noble, Sinha, and Kumar 2002). However, in less competitive markets, where firms face fewer threats from rivals and customers have fewer alternatives, the urgency to respond to both positive and negative eWOM is diminished (Lusch and Laczniak 1987). Consequently, firms in highly competitive environments are more likely to make larger adjustments to their strategic emphasis in response to consumer eWOM to maintain their competitive edge. Thus, we hypothesize:
Industry instability
Industry instability is characterized by rapid technological changes, evolving consumer preferences, and unpredictable market dynamics, creating an environment of uncertainty for firms (Teece, Pisano, and Shuen 1997; Tushman and O’Reilly 1996). In unstable industries, firms are more vulnerable to shifts in market conditions, making it imperative for them to act swiftly to capitalize on any positive consumer eWOM. When industry instability increases, positive consumer eWOM becomes an even stronger signal of consumer approval during times of volatility (Borah and Tellis 2016). In such dynamic environments, firms are likely to place a stronger emphasis on value appropriation to consolidate their market position and maximize the benefits of favorable consumer sentiment before market conditions shift again (Mizik and Jacobson 2003). By allocating resources toward value appropriation, firms can enhance their brand visibility, protect against potential competitors, and strengthen their connection with customers in an unstable environment, where firms face significant uncertainty about future outcomes (Lampel and Shamsie 2000; Porter 1980).
In contrast, negative consumer eWOM in unstable industries can have particularly damaging effects, as it not only signals dissatisfaction but also increases the likelihood of consumer defection to competitors that may be quicker to innovate or adapt (Tellis, Prabhu, and Chandy 2009). In such industries, where rapid technological changes and evolving preferences increase uncertainty, the stakes are higher. Therefore, negative consumer eWOM serves as a strong signal that firms must prioritize value creation to address product flaws and meet evolving customer needs (Rubera and Kirca 2017). From a VCA perspective, industry instability amplifies the need for firms to place a greater emphasis on value creation in response to negative consumer eWOM, as failing to act could result in significant losses in market share or relevance (Teece, Peteraf, and Leih 2016). By directing more resources toward value creation, firms can create new value through product improvements or innovations that address the root causes of negative consumer eWOM (Xiong and Bharadwaj 2014). In unstable industries, the ability to respond strongly to negative feedback by creating new value becomes a critical driver of competitive advantage, making the effect of negative consumer eWOM on value creation stronger in such environments (Borah and Tellis 2016). Therefore, firms in unstable industries are more likely to focus on value creation to mitigate the risks posed by negative eWOM and adapt to the rapidly changing landscape (Mudambi and Swift 2014). Thus, we hypothesize:
Methodology
Data Sample and Sources
We compiled a large-scale dataset encompassing eWOM, brand, product category, market characteristics, and accounting data from multiple sources. Specifically, eWOM data was sourced from the Infegy Atlas social media analytics platform, brand data from Harris Interactive's EquiTrend, and accounting data from Compustat databases. We tested our conceptual framework using a longitudinal dataset of millions of eWOM posts about 39 publicly traded firms across four industries—airlines, automobiles, electronics, and restaurants—collected from major social media platforms over the period 2010–2020. 1
We selected these industries because their brands play a significant role in consumers’ everyday lives, increasing the likelihood of eWOM engagement and emotional expression on social media. This selection offers a mix of hedonic and utilitarian products, allowing us to observe how eWOM sentiment influences firm strategy across diverse consumer needs and experiences. Given the high levels of consumer interaction and emotional attachment to brands in these sectors, we can more effectively examine how positive and negative consumer eWOM impact firms’ strategic emphasis on value appropriation (e.g., advertising) versus value creation (e.g., R&D). The companies in our sample represent all publicly traded firms within these industries for which social media data was available. To connect brand characteristics to firm performance and strategy, we utilized corporate brands in our analysis. A list of the 39 corporate brands/firms included in our sample can be found in the Web Appendix.
We employed the Infegy Atlas social media analytics platform to gather consumers’ eWOM transmissions about corporate brands on social media. Infegy's advanced platform covers a wide array of social media channels, including Facebook, Instagram, Twitter, Tumblr, Pinterest, TikTok, YouTube, forums, and blogs. To extract consumer eWOM data from the Infegy Atlas platform, we followed a specific data retrieval process. First, we entered relevant brand keywords and applied channel filters to capture posts from selected social media platforms. We filtered posts to include only English-language entries from the United States and set the data collection period from January 1, 2010, to December 31, 2020. After configuring these parameters, we initiated data extraction and downloaded the dataset, which included the total count of eWOM posts and sentiment categorization into positive, negative, and neutral.
Infegy Atlas categorizes eWOM sentiment using natural language processing techniques. Initially, each post undergoes text refinement, where extraneous elements like special characters and unrelated words are removed. The refined text is then analyzed using a sentiment lexicon—a repository of words and phrases tagged with positive, negative, or neutral sentiment scores. Sentiment evaluation algorithms match these lexicon entries to words in each post to determine the overall sentiment score. Based on this score, posts are classified as positive (high positive scores), negative (dominant negative scores), or neutral (scores near zero or within a neutral range) (for examples of eWOM posts, see the Web Appendix). This process allows Infegy Atlas to systematically sort posts by sentiment for further analysis. The Web Appendix summarizes the steps taken to extract data for sentiment analysis using Infegy Atlas.
To ensure the validity of the sentiment classification, we manually checked a subset of 10,000 original posts by verifying their sentiment scores using Linguistic Inquiry and Word Count (LIWC) software. This manual validation process helps assess the accuracy of Infegy Atlas's sentiment categorization by comparing its results with LIWC's linguistic analysis, which assigns sentiment based on a well-established psycholinguistic dictionary. The correlation between the two was .87, supporting the validity of our eWOM sentiment measure.
We obtained brand equity data from Harris Interactive's EquiTrend database. To categorize product categories as either hedonic or utilitarian, we conducted a survey via Centiment.co. 2 Additionally, we obtained firm accounting data, such as quarterly sales and returns on assets (ROA), from Compustat. We matched the accounting data from Compustat with the eWOM data on a quarterly basis. The final sample used for analysis consists of 1,343 firm-quarter observations. To validate the brand equity measure, we collected brand equity data using the scale from Yoo, Donthu, and Lee (2000) for 35% of the brands in our sample. The data was gathered from a sample of 120 U.S. consumers aged 18 and above, recruited through Centiment.co. We then compared the results of our survey with the brand equity measure provided by Harris Interactive. The correlation between the two was .85, further supporting the validity of our measure. Details on brand equity measures are provided in the Web Appendix.
Measures of the Dependent Variable
In line with Mizik and Jacobson (2003) and Swaminathan, Murshed, and Hulland (2008), we measure strategic emphasis as the relative emphasis that a firm places on investing in value appropriation (e.g., advertising) versus value creation (e.g., R&D). To quantify strategic emphasis, we adopt an operational approach inspired by previous studies (e.g., Hudson and Morgan 2023; Shankar and Francis 2023). Specifically, we calculate the firm strategic emphasis by taking the difference between the firm's advertising expenditure and its R&D expenditure and then dividing it by the total assets of the firm. A firm's advertising expenditure is used as a proxy measure for a firm's value appropriation activities since it is often the key observable measure that allows firms to continue to extract profits from the marketplace (Mizik and Jacobson 2003) facilitating the value appropriation mechanism. In comparison, a firm's R&D expenditures are used as a proxy measure for a firm's value creation activities, since it is the key observable measure that allows firms to create value through innovations, facilitating the value creation process (Mizik and Jacobson 2003). This measurement allows us to gauge a firm's relative strategic emphasis on value appropriation (advertising) compared with value creation (R&D). We denote a firm's strategic emphasis as SEit, computed using the formula: SEit = (Advertising Spendingit − R&D Spendingit)/Total Assetsit (e.g., Mizik and Jacobson 2003; Swaminathan, Murshed, and Hulland 2008).
Measures of Independent Variables
EWOM sentiments
We extracted eWOM posts for brandj at timet from Infegy Atlas and aggregated the data on a quarterly basis. Infegy Atlas categorizes eWOM posts into positive, negative, and neutral sentiments using advanced natural language processing and machine learning techniques. For our main analysis, we use the natural logarithm of the total count of positive, negative, and neutral eWOM posts. While our primary focus is on examining the effects of positive and negative eWOM, our model also includes neutral eWOM as a control variable. For robustness tests, we constructed additional measures, including the ratio of positive eWOM volume to negative eWOM volume and the percentage of each type of eWOM sentiment out of the total eWOM volume.
Hedonic versus utilitarian category
To classify the product categories into either hedonic or utilitarian product categories, we conducted a survey of 170 U.S. consumers aged 18 and above, who were recruited by Centiment.co. During the survey, participants were asked to evaluate the four categories using the hedonic/utilitarian scale from Voss (2003). The variable is constructed based on the question “In general, I consider products and services offered by this category as …”: functional versus not functional, practical versus impractical, useful versus not useful, necessary versus unnecessary, not fun versus fun, dull versus exciting, not thrilling versus thrilling, not enjoyable versus enjoyable. We used a seven-point Likert scale for each set of category characteristics (e.g., 1 = “not functional,” and 7 = “functional”; 1 = “not enjoyable,” and 7 = “enjoyable”). We then obtained the average ratings across respondents for each category. As expected, airlines and restaurants received higher rankings on the hedonic scale, indicating that they were perceived as a more hedonic category, whereas electronics and automobiles were rated as a more utilitarian category. We coded the hedonic category as one and the utilitarian category as zero.
Market competition
Market competition is measured by (1 − Herfindahl index). The Herfindahl index is the sum of squares of market shares of all firms in the four-digit Standard Industrial Classification industry.
Industry instability
The measure of industry instability is constructed by calculating the standard deviation of industry sales over the past three years. This approach captures fluctuations in industry performance, with higher standard deviations indicating greater volatility and uncertainty in the market. By analyzing the variability in industry sales, the measure reflects the extent of unpredictability in market conditions, technological changes, and consumer preferences, providing a quantifiable indicator of industry instability.
Measures of Control Variables
We control for the following variables in the model of firm strategic emphasis: brand equity, firm size, sales, ROA, and social platform. Brand equity is a latent variable scaled on a 0–100 index in Harris Interactive's EquiTrend database. The latent brand equity variable is estimated using three individual-level consumer variables: familiarity, perceived quality, and purchase consideration. Familiarity is assessed by consumer ratings of familiarity with the brand on a five-point scale (1 = “never heard of the brand,” 2 = “just know of the brand,” 3 = “somewhat familiar with the brand,” 4 = “very familiar with the brand,” and 5 = “extremely familiar with the brand”). Perceived quality is assessed by consumer ratings of the quality of the brand on an 11-point scale (0 = “unacceptable/poor,” 5 = “quite acceptable,” and 10 = “outstanding/extraordinary”). Purchase consideration is assessed by consumers’ ratings of intention regarding their future relationship with the brand on an 11-point scale (0 = “never would purchase the brand,” and 10 = “absolutely would purchase the brand”). The data for three individual-level consumer variables were collected by Harris Interactive from more than 20,000 consumers for over 1,000 brands on an annual basis. 3
Size is the natural logarithm of the firm's total assets. Sales is the natural logarithm of the firm's sales. ROA is equal to the firm's net income divided by total assets. Social media platform refers to the total number of distinct social media platforms where eWOM data was posted during each quarter. This measure captures the breadth of eWOM distribution across multiple platforms, providing an indicator of the diversity of channels through which consumers express feedback. A higher number of platforms suggests that consumer sentiment is being shared across a wider range of social media sites. In addition, we control for the lagged dependent variable in our models. We also include 43 year-quarter dummies to control for potential time-varying macroeconomic factors, respectively. The Web Appendix reports the definitions, measures, and data sources of the variables used in our analytical models and the correlation coefficients of all variables utilized in our analysis.
Strategic Emphasis Model
We employ a dynamic panel model using the Blundell and Bond (1998) system generalized method of moments (GMM) estimator to examine the impact of consumer eWOM sentiment on firm strategic emphasis. This approach is particularly well-suited to our research question, as it accounts for the temporal dependence of strategic decisions, where firms’ current actions are influenced by past choices. By incorporating the lagged dependent variable (strategic emphasis), we capture the persistence or inertia in firms’ resource allocation decisions over time. A key strength of the system GMM approach is its ability to mitigate endogeneity concerns, which may arise from reverse causality (i.e., strategic decisions influencing eWOM) or omitted variable bias (where unobserved factors affect both consumer eWOM and firm strategy). To further control for time-varying macroeconomic conditions, industry-wide shocks, and seasonality, we include year-quarter fixed effects in some specifications. The main effect model for our dynamic panel model using the Blundell–Bond (1998) system GMM estimator, which captures the temporal dynamics of strategic emphasis, is specified as follows:
To further explore the moderating effects of product category (hedonic/utilitarian), market competition, and industry instability on the relationship between eWOM sentiment and strategic emphasis, we extend the model as follows:
In both models, &epsis;it represents the idiosyncratic error term, i denotes the firm, and t represents time.
Results
Main Effect of Positive and Negative eWOM on Firm Strategic Emphasis
Table 2 presents the results of the strategic emphasis models. Model 1a examines the main effect of eWOM sentiments on strategic emphasis while controlling for brand, category, firm, and market-related variables. In Model 1a, the results reveal that both positive and negative eWOM have significant effects on firms’ strategic emphasis. Positive eWOM has a positive and significant effect on strategic emphasis (β = .178, p = .001), suggesting that when consumers express positive sentiments, firms tend to shift their strategic focus toward value appropriation, in support of H1. This result indicates that firms respond to positive eWOM by emphasizing activities that allow them to capitalize on the goodwill generated by favorable consumer perceptions.
Impacts of eWOM Sentiments on Strategic Emphasis, Value Appropriation, and Creation.
Notes: FEs = fixed effects. Robust standard errors are in parentheses.
Conversely, negative eWOM has a negative and significant effect on strategic emphasis (β = −.148, p = .000), indicating that firms shift their emphasis from value to value creation in response to unfavorable consumer feedback. This result suggests that when faced with negative eWOM, firms are likely to reallocate resources toward value creation to address the concerns raised by dissatisfied customers. This finding provides evidence to support H2. The control variables in this model, such as firm size and ROA, also show notable significance, suggesting that larger and more profitable firms have more capacity to adjust their strategic emphasis in response to eWOM. Similar results are found in Models 1b and 1c, where VA and VC are the respective dependent variables.
To ensure the validity of our system GMM estimation, we conduct several diagnostic tests. The Arellano–Bond test for serial correlation confirms that the first-order autoregressive (AR[1]) is significant (p = .002), while the second-order autoregressive (AR[2]) is not (p = .259), ensuring that our instruments are valid and that there is no second-order serial correlation in the error terms. Furthermore, the Hansen J-test for overidentification does not reject the null hypothesis (p = .198), indicating that the instruments are appropriately specified in each of the models in Table 2, Panel A. Overall, the results highlight the significance of eWOM sentiments in shaping firms’ relative strategic emphasis between value appropriation and value creation. Positive eWOM steers firms toward investing more in value appropriation activities, while negative eWOM prompts them to prioritize value creation activities. The contrasting effects of positive and negative eWOM on strategic emphasis underscore the role of consumer perceptions and feedback in influencing firms’ strategic decisions and resource allocation.
Moderating Effects of Product, Market, and Industry Characteristics
Next, Model 2a examines the moderating roles of product category (hedonic vs. utilitarian), market competition, and industry instability in the relationship between eWOM sentiments and strategic emphasis. The main effects of positive and negative eWOM remain significant in this model, consistent with the findings from Model 1a. Positive eWOM has a positive and significant effect on strategic emphasis (β = 4.945, p = .000), indicating that firms continue to prioritize value appropriation when they receive favorable consumer feedback. Negative eWOM also has a negative and significant effect on strategic emphasis (β = −2.669, p = .000), suggesting that firms shift focus toward value creation in response to unfavorable consumer sentiment.
Moderating effect of product category
The interaction between positive eWOM and the hedonic product category is negative and significant (β = −.571, p = .000), suggesting that for hedonic products, the positive impact of eWOM on strategic emphasis toward value appropriation is weaker. This may be because positive feedback on hedonic products, which are more subjective and driven by personal tastes, provides less concrete guidance for firms to expand value appropriation investments. The interaction between negative eWOM and the hedonic category is positive and significant (β = .278, p = .000), indicating that for hedonic products, the negative impact of eWOM on strategic emphasis is weaker, possibly because negative feedback on hedonic products may be perceived as less actionable due to its subjective nature. These findings are consistent with our prediction in H3a and H3b. Figure 2 provides a visual representation of the moderating effects of product category.
Interaction Effects Between eWOM Sentiments and Product Category.
Moderating effect of market competition
The interaction between positive eWOM and competition is positive and significant (β = 5.752, p = .000), suggesting that in highly competitive markets, firms are more likely to increase their emphasis on value appropriation in response to positive eWOM. This result indicates that in competitive markets, firms feel greater pressure to increase value appropriation, in support of H4a. Furthermore, we find that the interaction between negative eWOM and competition shows a significantly negative effect (β = −3.048, p = .000), indicating that firms lean more toward value creation rather than value appropriation in response to negative eWOM under high competition, providing some evidence to support H4b, as shown in Figure 3.
Interaction Effects Between eWOM Sentiments and Market Competition.
Moderating effect of industry instability
The interaction between positive eWOM and industry instability is positive and significant (β = .031, p = .002), indicating that in unstable industries, firms place a stronger emphasis on value appropriation in response to positive eWOM. This result suggests that firms in volatile environments capitalize on positive sentiment to stabilize their market position, in support of H5a. However, the interaction between negative eWOM and instability is not statistically significant (β = .010, p = .100), indicating that in unstable industries, the impact of negative eWOM on strategic emphasis does not differ significantly from more stable industries, failing to support H5b. These interactions are visualized in Figure 4.
Interaction Effects Between eWOM Sentiments and Industry Instability.
Effects of Positive and Negative eWOM on Changes in Value Appropriation and Value Creation
Although we do not present specific hypotheses for the separate effects of eWOM sentiments on value appropriation and value creation, we include additional empirical analyses in this section. Specifically, we examine the impact of positive and negative eWOM on changes in value appropriation and value creation investments in time t compared with time t − 1. To construct the change measure for value appropriation and value creation, we calculate the percentage change in expenditures by taking the difference between the values at time t and time t − 1, divided by the value at time t − 1 (i.e., ΔVA = (VAt − VAt−1)/VAt−1 and ΔVC = (VCt − VCt−1)/VCt−1). These measures capture the relative changes in firms’ advertising and R&D expenditures as proxies of changes in VA and VC in response to shifts in eWOM sentiment over time.
Changes in value appropriation
In Model 2b, positive eWOM has a positive and significant effect on changes in value appropriation (β = 12.239, p = .018), indicating that firms tend to increase their value appropriation expenditures in response to favorable consumer sentiment. This result suggests that firms capitalize on positive eWOM by investing more in activities such as advertising to reinforce market perceptions and broaden their market presence. Conversely, negative eWOM has a negative and marginally significant effect on changes in value appropriation (β = −6.932, p = .051), indicating that firms reduce their value appropriation investments when faced with unfavorable eWOM. This reduction likely reflects a shift in strategic focus from promoting current offerings to addressing product deficiencies or improving consumer perceptions through alternative strategies.
Regarding the moderating effects, we find similar patterns across product category, market competition, and industry instability. Specifically, the results show that firms with hedonic products are less likely to increase value appropriation in response to positive eWOM compared with those with utilitarian products (β = −13.272, p = .032). Similarly, firms with hedonic products are less likely to reduce value appropriation when faced with negative eWOM (β = 7.628, p = .009), compared with those with utilitarian offerings. For market competition, the results indicate that in highly competitive markets, firms are more likely to increase value appropriation in response to positive eWOM (β = 22.436, p = .004). Additionally, firms are more likely to decrease value appropriation in response to negative eWOM (β = −8.830, p = .034). Lastly, in unstable industries, firms are more likely to increase value appropriation in response to positive eWOM (β = 3.658, p = .027) and reduce value appropriation in response to negative eWOM (β = −6.753, p = .036), highlighting the need for firms to adapt quickly in volatile environments based on consumer sentiment.
Changes in value creation
In Model 2c, the results indicate that positive eWOM has a negative and significant effect on changes in value creation (β = −9.271, p = .045), suggesting that firms decrease their value creation investments when receiving favorable consumer feedback. This negative relationship likely reflects a shift in focus from developing new products to capitalizing on existing offerings through value appropriation activities such as advertising. In contrast, negative eWOM has a positive and significant effect on changes in value creation (β = 8.709, p = .006), demonstrating that firms increase their value creation efforts in response to unfavorable feedback. This finding suggests that firms prioritize innovation and product improvement to address the concerns raised by dissatisfied customers.
The moderation analysis further reveals that firms with hedonic products are less likely to reduce value creation investments in response to positive eWOM compared with those with utilitarian products (β = 1.678, p = .043). Comparatively, negative eWOM elicits a weaker value creation response for hedonic products than for utilitarian ones (β = −1.396, p = .019), indicating that hedonic products may not drive as strong an innovation push when facing negative sentiment. For market competition, the results show no significant effect on how firms adjust their value creation investments in response to eWOM. Lastly, in unstable industries, firms are more likely to reduce value creation investment in response to positive eWOM (β = −2.051, p = .001), but they significantly increase value creation investment in response to negative eWOM (β = 1.233, p = .039). This result suggests that in volatile environments, firms focus more on innovation to maintain competitiveness when facing negative feedback, whereas positive eWOM encourages a shift away from value creation toward other strategic activities.
Robustness Tests
Effect of the ratio of positive to negative eWOM
In this additional analysis, we use the ratio of positive to negative eWOM volume as an independent variable in the models examining strategic emphasis, changes in value appropriation, and changes in value creation. In these models, we also control for total eWOM volume. We focus our interpretation on the full models (Models 4a–4c) in Table 3, Panels A and B. In Model 4a, the ratio of positive to negative eWOM has a positive and significant effect on strategic emphasis (β = 1.856, p = .000), indicating that as the ratio of positive to negative eWOM increases, firms are more likely to shift their strategic focus toward value appropriation. In Model 4b, the ratio of positive to negative eWOM has a positive and significant effect on changes in value appropriation (β = 15.658, p = .038), suggesting that firms moderately increase their value appropriation expenditures in response to a higher proportion of positive eWOM. In Model 4c, the ratio of positive to negative eWOM has a negative and significant effect on changes in value creation (β = −12.687, p = .035), indicating that firms decrease their value creation investments as the ratio of positive to negative eWOM increases, likely because positive feedback reduces the perceived need for further product development.
Robustness Test: eWOM Sentiment Ratio as Alternative Independent Variable.
Notes: FEs = fixed effects. Robust standard errors are in parentheses.
Effect of eWOM sentiment percentage
In this additional analysis, we use the percentage of positive and negative eWOM posts as independent variables in the models examining strategic emphasis, changes in value appropriation, and changes in value creation. 4 In these models, we also control for total eWOM volume. We focus our interpretation on the full models (Models 6a–6c) in Table 4, Panels A and B. In Model 6a, increased positive eWOM percentage is associated with strategic emphasis on value appropriation (β = 2.252, p = .062), while increased negative eWOM percentage is negatively associated with strategic emphasis on value creation (β = −8.941, p = .064). In Model 6b, increased positive eWOM percentage is positively associated with increased value appropriation (β = 13.800, p = .069), while negative eWOM percentage is negatively associated with increased value appropriation (β = −9.829, p = .000). Lastly, in Model 6c, increased positive eWOM percentage has a significant negative effect on changes in value creation (β = −13.950, p = .000), while negative eWOM percentage has a significant positive effect on changes in value creation (β = 9.539, p = .000).
Robustness Test: eWOM Sentiment Percentage as Alternative Independent Variable.
Notes: FEs = fixed effects. Robust standard errors are in parentheses.
Adding eWOM dispersion as an additional control variable
For robustness testing, we also include eWOM dispersion as an additional variable in the models of strategic emphasis, changes in value appropriation, and changes in value creation. eWOM dispersion is calculated as the standard deviation of the ratio of daily positive to negative eWOM for each quarter. The results, reported in Table 5, show that the inclusion of eWOM dispersion does not alter the main findings, as the results are qualitatively consistent with those reported in Table 2, Panels A and B. This result further reinforces the robustness of the relationship between eWOM sentiment and firms’ strategic decisions in terms of resource allocation toward value appropriation and value creation.
Robustness Test: eWOM Dispersion as Additional Control Variable.
Notes: FEs = fixed effects. Robust standard errors are in parentheses.
Discussion
Theoretical Implications
Our research offers new and valuable insights into two critical research domains: eWOM and marketing strategy. Understanding how eWOM influences a firm's strategic emphasis is paramount in an era where consumer voices on digital platforms can significantly sway market dynamics. While previous studies have largely focused on how consumer eWOM impacts consumer-level outcomes (e.g., Baker, Donthu, and Kumar 2016; Rocklage and Fazio 2020; Yin, Bond, and Zhang 2014) or financial performance outcomes (Babić Rosario et al. 2016; Borah et al. 2022; Colicev et al. 2018; Marchand, Hennig-Thurau, and Wiertz 2017; Nguyen, Calantone, and Krishnan 2020; You, Vadakkepatt, and Joshi 2015), this research adds to the eWOM literature stream and expands our understanding of the effects of consumer eWOM by showing how it influences firm strategic decisions. eWOM is public and visible for all to see, so logically it has the potential to influence a variety of different stakeholders within the marketplace. Previous literature suggests that firms listen to consumer eWOM and use it as a form of market intelligence, but how that consumer eWOM is digested and interpreted at a strategic level has not been well understood. This research provides evidence of the influence of consumer eWOM on firm strategic decisions and a firm's strategic emphasis on value appropriation versus value creation. As the world becomes even more digital, consumer eWOM has become ubiquitous, so having a more comprehensive understanding of the influence of consumer eWOM is vital to the development of new eWOM-based theoretical frameworks.
Second, this research contributes to the marketing strategy literature by expanding our knowledge about the factors that influence a firm's strategic emphasis and the trade-off between value appropriation versus value creation. The literature has a good understanding of the internal drivers of firm strategic decisions, including manager characteristics (Hudson and Morgan 2023; Kashmiri, Gala, and Nicol 2019; Kim, Xiong, and Kim 2018) and firm financial characteristics (e.g., Cheng et al. 2022; Josephson, Johnson, and Mariadoss 2016; Sridhar, Narayanan, and Srinivasan 2014), as well as external drivers like analyst forecasts and investor complaints (e.g., Chakravarty and Grewal 2016; Mian, Sharma, and Gul 2018; Wies et al. 2019). However, the extant literature has yet to fully capture how consumers, as a key stakeholder group, influence a firm's strategic emphasis. This research highlights the influence of consumer eWOM sentiment, which is ubiquitous in current markets. While traditional drivers continue to play a pivotal role in shaping strategic decisions, our research introduces a new dimension and perspective to the existing framework. For example, our estimation shows that for every unit increase in positive eWOM, firms are likely to increase their strategic emphasis on value appropriation relative to value creation by approximately .178 units. This finding suggests that positive eWOM has a significant effect on firms’ resource allocation, pushing them to prioritize value appropriation efforts to capitalize on existing value rather than value creation efforts of developing new offerings. This expanded understanding of the interconnectedness between consumer eWOM and firm strategic emphasis has the potential to reshape how firms respond to the ever-evolving landscape of consumer preferences and market dynamics. In this regard, our research lays the foundation for future inquiries into this emerging and transformative landscape where consumer eWOM and firm strategic focus intersect.
Our findings also demonstrate the unique influence of consumer eWOM when compared with other stakeholders’ voices. A significant distinction emerges when we consider how firms respond to negative consumer eWOM. In the case of investor complaints, the typical response has been an increase in value appropriation or advertising expenditures, often seen as a compensatory action (Wies et al. 2019). However, our research uncovers a contrasting reaction when faced with negative consumer eWOM. Firms, instead of viewing value appropriation as a short-term profit booster, reorient their strategic emphasis toward value creation to address consumer concerns and enhance their products. Our results indicate that for every unit increase in negative eWOM, firms are likely to decrease their strategic emphasis on value appropriation relative to value creation by approximately .148 units. Our distinctive insight underscores the evolving nature of strategic decisions in the digital age, where consumer voices hold immense power. In the past, firms might have favored value appropriation as a quick solution to address concerns from various stakeholder groups. However, this research suggests that consumer sentiment via eWOM carries unique weight, steering firms toward a longer-term, innovation-focused emphasis on value creation to rectify product issues and meet customer expectations. This novel insight highlights the dynamic and evolving role of consumer eWOM in shaping corporate strategies, emphasizing its distinctive nature compared with other stakeholder voices, and thus providing a new perspective for marketing scholars.
Furthermore, this research advances our understanding of how product category and industry conditions impact consumer eWOM's influence on a firm's strategic emphasis. It demonstrates that in hedonic categories, where products are more opinion or taste-based, consumer eWOM, regardless of valence, appears to have an overall weaker effect on a firm's strategic emphasis toward value creation versus value appropriation. In contrast, in utilitarian product categories, where objective opinions are more prevalent, positive and negative consumer eWOM have stronger impacts on firm strategic emphasis since content from consumer eWOM can be seen as clearer, decisive, and useful for firm strategic decision-making. By revealing the distinct effects of consumer eWOM in utilitarian and hedonic product categories, we provide fresh insights into how firms allocate resources and tailor their strategies based on product category characteristics. This enriches the theoretical foundation of eWOM research (e.g., Babić Rosario et al. 2016; Rocklage and Fazio 2020; Verma and Yadav 2021) and underscores the importance of considering product category dynamics in understanding the complexities of consumer sentiment's influence on strategic decision-making.
Lastly, the study underscores the influence of industry conditions on the relationship between consumer eWOM and firm strategic emphasis. In highly competitive markets, the influence of positive and negative consumer eWOM on firm strategic emphasis on value appropriation versus value creation is stronger, suggesting that consumer eWOM may have a greater influence on firm strategic decisions in these markets. This heightened influence reflects firms’ need to be agile and responsive to consumer feedback to maintain competitive advantage. Our findings also highlight that in highly volatile industries, positive consumer eWOM has a greater influence on a firm's strategic emphasis shift toward value appropriation versus value creation. Diving deeper into these results, we find that firms shift more resources toward value appropriation (e.g., advertising) and reduce resource allocations toward value creation (e.g., R&D) in these highly volatile markets. These findings underscore the notion that highly volatile industries exhibit high levels of uncertainty for firms, and thus, they take more drastic actions to appropriate value when there is positive consumer sentiment since there is less certainty of that value being available in the future. Overall, this research enriches the theoretical landscape of eWOM and marketing strategy, challenging existing paradigms and providing valuable insights for future theoretical developments in the field.
Managerial Implications
Our research provides practical guidance for firms, acknowledging the dynamic relationship between eWOM sentiment and strategic focus.
Resource allocation strategies
Effective resource allocation strategies hinge on a firm's response to consumer eWOM. Given limited resources, managers face trade-offs when allocating resources and, therefore, must react to different influences in the marketplace. As such, when firms face negative consumer eWOM, they can use this as a guiding factor to ensure the optimal balance between allocating resources toward value appropriation versus value creation. One striking example is Apple Inc. In 2017, Apple faced widespread negative consumer eWOM due to battery-related performance issues in their older iPhones. Instead of allocating more resources toward advertising to mitigate the damage, Apple chose to shift resources toward creating new value via R&D to address the issue at its core (Spence 2017). This strategic shift resulted in the introduction of battery health features and optimizations in subsequent iOS updates. In contrast, positive consumer eWOM signals an opportunity to appropriate the value of currently popular products through targeted advertising. A prime example of this is Coca-Cola's “Share a Coke” campaign, which leveraged positive consumer sentiment to boost product visibility and sales (Mupeti 2023). Therefore, firms should adapt their resource allocation strategies to the type of eWOM they encounter, shaping their emphasis on value appropriation versus value creation accordingly.
Investor insights
Investors play a pivotal role in the financial landscape, and they are constantly seeking information and signals that can help them make informed decisions about where to allocate their capital. eWOM sentiment emerges as a valuable indicator for investors. Consider a scenario where a company experiences a surge in positive consumer eWOM, reflecting heightened consumer enthusiasm and favorable sentiments about its products or services. This situation often signals a short-term profitability opportunity driven by the firm's emphasis on value appropriation. Investors who closely monitor eWOM trends can adapt their portfolios to seize potential short-term gains. On the flip side, when a company shifts its strategic emphasis toward value creation in response to negative eWOM, it signifies a dedication to addressing consumer concerns and enhancing product quality in the long run. This strategic shift implies a focus on innovation and new value creation, prioritizing it over appropriating the value of offerings currently in the marketplace via advertising. Investors who pursue long-term investment strategies may interpret this shift as a positive development and choose to invest in or increase their holdings in the company's stock. In essence, eWOM sentiment can serve as a valuable compass for investors navigating the dynamic financial landscape.
Limitations and Future Research Directions
While this research contributes to a deeper understanding of the role of consumer eWOM in influencing firm strategic emphasis, it faces some limitations, providing avenues for future research. First, the sample consists of a limited set of industries. While results are robust across different models, examining the relationship between consumer eWOM and firm strategic emphasis across a wider variety of industries could provide additional evidence of generalizability or perhaps shed light on industry characteristics that may impact this relationship. Next, this research leverages the VCA framework to examine a firm's strategic emphasis on value creation versus value appropriation. While this is a focal marketing-related tradeoff firms face, future research may want to look at how consumer eWOM influences other core strategic decisions that are outside of the scope of this article, such as financing decisions, merger and acquisition decisions, and product portfolio decisions. Additionally, this research focuses on the influence of consumer eWOM sentiment, which is a prominent and ubiquitous element of consumer eWOM. Future research could expand on this idea by examining how other elements of eWOM impact firm strategic emphasis. For example, examining the effect of discrete eWOM emotions and other sources of eWOM could shed light on what drives a firm strategic emphasis. Moreover, while this study classifies eWOM into broad sentiment categories (positive, negative, and neutral), future research could explore how variations in sentiment intensity influence firm strategic responses. Posts with stronger directional language may be more impactful, and capturing this granularity could provide deeper insights into how firms interpret and react to consumer sentiment. As such, the examination of how eWOM impacts firm strategic decisions provides many opportunities for additional research.
Supplemental Material
sj-pdf-1-jnm-10.1177_10949968251352492 - Supplemental material for Shaping Strategy in the Digital Age: The Impact of Consumer Electronic Word of Mouth on Firm Strategic Emphasis
Supplemental material, sj-pdf-1-jnm-10.1177_10949968251352492 for Shaping Strategy in the Digital Age: The Impact of Consumer Electronic Word of Mouth on Firm Strategic Emphasis by Hang T. Nguyen, Brandon Z. Holle, and Hieu V. Phan in Journal of Interactive Marketing
Footnotes
Acknowledgments
We would like to provide sincere thanks to the JNM review team for their insightful comments on this research.
Editor
Beth Fossen
Associate Editor
Simone Wies
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
Notes
References
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