Pricing for new products in the presence of online review inaccuracy: free trial or not?

Purpose When a new product is launched, consumers are typically uncertain about its true quality. Early online reviews serve as important quality signals that help consumers evaluate product quality. However, review inaccuracy caused by factors such as delivery delays, consumer herding behavior and review manipulation may mislead subsequent consumers, thereby affecting the retailer’s pricing decisions and profitability. This paper aims to analyze the adverse effects of review inaccuracy and examine whether free trial can mitigate these effects. Design/methodology/approach This paper considers two scenarios: with and without free trial. A two-period game model is constructed to analyze the retailer’s optimal pricing decisions under each scenario. The effectiveness of free trial is further examined based on review accuracy, the prior probability that the new product is of high quality and the unit marketing cost of free trial. Findings The results show that review inaccuracy reduces consumers’ perceived review credibility. Although free trial enhances consumers’ perceived review credibility, it is not always effective in mitigating the adverse effects of review inaccuracy on the retailer’s profit. Specifically, free trial effectively mitigates these effects only when the prior probability that the new product is of high quality is high, or when this prior probability is low but the unit marketing cost of free trial is very low. In addition, as review accuracy increases, the likelihood that the retailer adopts free trial as a mitigation strategy decreases. Originality/value In the presence of online review inaccuracy, we characterize consumers’ belief updating regarding product quality based on Bayes’ rule and clarify the relationship between consumers’ beliefs and market demand. Meanwhile, we analyze the optimal pricing decisions for a new product under two scenarios – with and without free trial – thereby enriching the literature on online reviews and new product pricing. Furthermore, we treat free trial as a review-quality intervention and examine its effectiveness in mitigating the adverse effects of review inaccuracy, thereby extending the research perspective on the free trial strategy. The findings provide managerial insights for retailers’ operational decisions, e-commerce platform governance and industry policy formulation in the presence of online review inaccuracy.