Geographical Pattern of Online Word-of-Mouth: How Offline Environment Influences Online Sharing

We study the geographical pattern of online word-of-mouth (WOM). Specifically, we examine whether and how customers' local environment influences the generation and direction of online WOM. Leveraging a unique research design, we measure the online WOM at a U.S. national e-commerce platform by tracking the WOM referral decisions of customers in over 240,000 purchases. In parallel, we measure the local environment of customers by combining a range of proprietary and public data sources (Facebook, Census, ESRI, and SCCBS). This includes the offline social environment (e.g., friend visiting frequency, neighbor interactions, and population mobility), online social environment (e.g., Facebook ties), and local historical sales across geographical areas. We build a stylized theoretical framework based on customer sharing motives and social networks to guide our empirical examination. While digital technologies have enabled customers to share without physical boundaries, we find that location still plays significant roles in the generation and direction of online WOM. First, a customer's offline social environment significantly explains the generation of online referrals (whereas local characteristics known to drive online sales do not positively explain the referral generation). Second, online referrals are largely bounded locally (e.g., 47% within 10 miles), and referrals in areas with more local social interactions are more likely to stay local. Third, even when referrals travel far, they are more likely to point at destinations socially similar to the origins. Our findings have important implications for firms in allocating resources across geographical areas as well as using referral directions as signals to identify high-potential geographical markets.