EU Energy Label
Ideas for Leaders #431

Why Differentiating Rating Scale Labelling is Important

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Key Concept

Rating scales, such as those used in online review platforms or stores (for example, Amazon or Tripadvisor) or by government rating agencies (such as agencies rating energy savings), allow consumers to evaluate the performance of products or services. However, new research shows that when the scale levels of the rating scale are not distinguished visually (e.g. by colour) or linguistically (e.g. using the linguistically different A, B, C, D rather than A, A+, A++, A+++), consumers are more likely to ignore them — and this can hurt the sales. 

Idea Summary

Online consumers have come to expect to be able to read customer ratings and reviews as they consider which product or service to buy. On websites such as IMDB, Amazon and Expedia, reviewing the ratings from other customers is an important part of the purchasing process. Rating scales are also used in other contexts, such as allowing customers to determine the energy efficiency of the products they buy.

Rating scales typically consists of number or letter sequences (1, 2, 3, 4, 5 or A, B, C, D, E). Such levels in a scale seem logical and obvious. However, the sequences, as new research shows, are more important than most companies realize. The reason for this importance is in the differentiation: consumers can quickly and intuitively see the difference among the rating levels, and this has consequences for their purchasing behaviour.

Specifically, a rating scale is more effective when the levels of the scale are visually and linguistically different. For example, the European Union recently decided to expand its European energy efficiency label to include ratings of A, A+, A++, A+++. The series of A’s, even with the plus signs, is not as linguistically different as A, B, C, D. Visual differentiation is as important as linguistic differentiation. Say, for example, that the scale levels are represented visually as colour-coded boxes: Ratings represented as boxes of different prime colours (blue, red, yellow, green) are more effective than scale levels represented as boxes of shades of colours.

What happens when this linguistic or visual differentiation is missing? When scale levels are linguistically or visually similar, consumers perceive the products as being similar as well. In other words, two products, one with an A and the other with an A+++ energy efficiency rating, will be perceived as not being very different from each other in terms of energy efficiency. These same products labelled with differentiated rating levels (e.g. A and D) would, on the other hand, be perceived as having quite different levels of energy efficiency. The same applies to products that are rated by consumers, such as music CDs, movies, books, hotel rooms etc.

This lack of differentiation can have a nefarious impact on higher-rated products. For example, a hotel that earns a higher rating is seen as not much different from a hotel that scores two levels lower simply because the rating scale levels are shown in various shades of red. Thus, the better-rated hotel — a hotel that earned this higher rating by offering a higher quality product —does not receive in the mind of the consumer the differentiation it deserves. In addition, and importantly, because they don’t appreciate the quality implications of the higher rating, consumers are not willing to pay a price premium for an upgrade to the more highly rated hotel.

Another consequence of rating levels that are not visually or linguistically distinct is that consumers will actually pay less attention to the ratings. Perceiving little difference between the products, consumers will look for other attributes or deciding points. 

Business Application

The research points to some intriguing possibilities for marketing practitioners. For example, marketers might use identical coloured price tags for the differently priced products, thus deemphasizing in the minds of consumers the significance of cost differences among the products. The consumers would then concentrate on other attributes to make their decisions, such as different functional features.

Another approach would be to use visual and linguistic characteristics to offer a sharp differentiation between the different levels of products. This causes consumers to focus on the detailed rating information to make their decisions. In this case, price becomes less of a concern. If the higher quality of a higher rated hotel is clearly described, and consumers are paying close attention to this description, then consumers will be willing to pay a premium for that hotel.

It’s important not to be too clever for one’s own good. The new European energy label design, for example, might actually be a disincentive for manufacturers: why invest in R&D to develop a more energy efficient product if consumers barely notice the difference? Also, a marketing platform for hotels, for example, might believe that nearly identical rating labels will have their customers believing that all hotels on their site are of a higher quality. As shown above, however, a truly higher quality hotel might be significantly disadvantaged simply because of the design of the rating scale. Or, consumers perceiving no significant difference in quality might decide to focus on price — and the platform’s profitability (assuming there’s a commission) suffers as a result.

The bottom line: for consumer review platforms or online store or travel agencies, as well as for eco-labelling, close attention must be paid to the labelling of the scale levels on any rating scale. Knowing that consumers’ minds can be manipulated somewhat by design characteristics does not mean that marketers will achieve the intended results.

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Authors

Institutions

Source

Idea conceived

  • June 2014

Idea posted

  • August 2014

DOI number

10.13007/431

Subject

Real Time Analytics