Feedback Analysis

Why is McKinsey Talking About Reviews & Ratings So Much This Year?

In the past year alone, McKinsey has published three research-backed articles about the growing importance of Reviews & Ratings both to consumers and businesses. According to their analysis, CPG and durable brands are wise to dig deep into Review & Rating data for business insights that can drive a more customer-centric approach.

So what does a new path forward look like? And, what does this mean for your business?

Here, we’ll look into the information and recommendations shared in these three powerful pieces.

Like many others, the consumer packaged goods (CPG) and eCommerce industries experienced unprecedented transformation as a result of the COVID-19 pandemic. The mass shift to online purchasing created an onset of available digital information, including Reviews & Ratings data, available to both consumers and businesses.

As consumers use this information to enrich their buying decisions, brands and retailers have the opportunity to leverage this information for their business decisions. How can businesses best leverage this information? Are these omnichannel, review-centric purchasing behaviors here to stay?

These are the questions that McKinsey & Company seeks to answer for their many prestigious clients. McKinsey & Company is a global management consulting firm with offices in over 130 cities and more than 90 years of working at the forefront of business and innovation.

Their in-depth research and analysis of the CPG and eCommerce space provide informed reporting on the state and trajectory of the industries in an evolving post-pandemic economy. In this article, we’ll summarize the key findings of three research-backed publications from McKinsey & Compay that dive into this topic exactly.

The Articles

The first article that we’ll dive into is called Five-star growth: Using online ratings to design better products. This piece was published in August of 2021, and paints a picture of the effect the pandemic has had on consumer behavior, specifically the volume and impact of Reviews &Ratings, including decreased brand loyalty and a need for brands to listen to feedback from customer reviews.

The second article is called Why businesses must heed customer reviews and was published in February of 2022. This article dives into what drives consumers to base their purchases on Review & Rating data, the impact of Reviews & Ratings on sales, and why it’s become so important for businesses to utilize Reviews & Ratings as a data source.

The third and final article is called Use star ratings to inform durable goods redesigns and spur growth and was published in April of 2022. This article dives deeper into the direct correlation between star rating and unit sales for consumer durable products, uncovering specific thresholds for increased growth based on the product category.

For the purposes of this article, consumer durables are defined as commodities, such as appliances, electronics, and home goods including furniture and tools, and excluding vehicles, that are purchased by consumers and used repeatedly over time.

Article 1: Five-star growth: Using online ratings to design better products

The Snapshot

In the first quarter of 2020, the eCommerce industry experienced 10 years of growth, including an 87% volume increase in Reviews & Ratings. Consumers now have access to more product information than ever before, which has led to a decrease in brand loyalty and opportunities for market disruption.

In fact, research shows that even slight changes in star ratings can have major impacts on sales. This means the products must speak for themselves, and brands are less able to rely on marketing campaigns to increase sales for an underperforming product. In this environment, brands must directly address consumer feedback to find long-term success.

To best leverage the information within Review & Rating data, McKinsey recommends utilizing a Natural Language Processing tool to extract actionable information.

It’s no question that massive amounts of Review & Ratings data are now publicly available. But, how influential is this information on real consumers? And how does this change the relationship that retailers and brands have with their customers?

This article takes a deep dive into the answers to these questions, using statistics from in-house studies conducted by McKinsey & Company’s data scientists using their large network of consumer markets.

The research revealed that during the first quarter of 2020 alone, the eCommerce industry experienced ten years' worth of growth. Simultaneously, Review & Ratings experienced an 87% rise in volume within one year.

The result is a vast increase in the accessibility and credibility of Reviews & Ratings content. Now, with unfiltered information about what real purchasers think about a product, even the facade of a high-budget marketing campaign can do little to improve sales for a poorly designed product with a low star rating. In a pandemic-adapted landscape, the product has to speak for itself, and the associated user experience is inevitably amplified in the reviews.

“The old levers of brand equity, greater ad spending, or big promotions are simply less relevant in an age when consumers have almost perfect, painless access to infinite word-of-mouth feedback. The products themselves—both the quality and the associated customer experience—may become the most important marketing tool.” McKinsey & Company Tweet

Adding to the pressure on businesses to adapt to the new environment is rising inflation and the need to increase prices to maintain margins. Unfortunately, given the current competitive landscape, if product reviews aren’t better than or equal to competitors or new entrants to the market, then a price increase isn’t an option.

To address this problem, McKinsey’s researchers analyzed the impact of product reviews on sales based on product category. As expected, they found that star rating has a major impact on sales.

Now, shoppers are quick to trust an unknown brand if it has amazing reviews, and the result is a clear decline in brand loyalty. In fact, 75% of Americans have changed their shopping behavior since the pandemic began, and of those, 40% said they have switched brands.

Consumers are actively searching for products with the highest star rating, and it’s reflected in sales data. Products with three to four stars see sales more than three times higher than those with one-star ratings. Even slight star rating increases can produce a meaningful bump in sales. Of the brands that experienced growth, an average of 37% of their growth can be attributed definitively to Ratings & Reviews.

McKinsey & Company suggests adopting a text analysis tool with Natural Language Processing (NLP) capabilities to extract useful information from product reviews. What’s more, using NLP insights, engineers can spend minutes reviewing an NLP tool's output and save hours building a design-failure-mode-and-effects-analysis (DFMEA) and as a result improve products quickly.

“Thanks to recent technological advances, NLP tools now make it easier to identify positive, neutral, and negative sentiment in reviews. They are also better at classifying product attributes and picking up idiosyncrasies, such as the use of jargon, slang, or sarcasm in reviews.” McKinsey & Company Tweet

For growth-minded businesses wanting to stay competitive among the discerning consumers now dominating the marketplace, embracing a customer-centric approach to messaging and product innovation through consumer feedback analysis appears to be the path forward.

Now, how do businesses truly adopt these consumer-centered strategies?

As an emerging priority for brands and retailers, the article recognizes that few companies have dedicated substantial efforts to maximizing the value of their Ratings & Reviews, and identified six steps that companies can follow to stay competitive:

  1. Shift resources to product improvement and work closely with suppliers.
  2. Focus on optimizing product claims to improve customer experience.
  3. Prioritize a brand or product’s digital presence by leveraging Reviews & Ratings, and optimizing retail site presence and digital marketing.
  4. Establish a technological foundation for analyzing reviews, specifically using Natural Language Processing (NLP) tools to understand customer sentiment.
  5. Increase efficiency by adopting a cross-functional, collaborative working style between departments.
  6. Apply insights found from these steps across the organization to quickly scale the impact.

A six-part approach to help companies manage online ratings and reviews.

Source McKinsey

The bottom line remains that diving deeper into customer reviews allows brands to create better offerings, increase customers' willingness to pay, unlock new product categories, surpass the competition, and drive organic growth.

Article 2: Why businesses must heed customer reviews

The Snapshot

Consumer behavior has fundamentally changed as a result of the rapid eCommerce growth resulting from the COVID-19 pandemic. The shopping experience is more transparent than ever due to the peer-to-peer conversation facilitated through Reviews & Ratings.

With shoppers able to make informed decisions without having to rely on a brand name to trust the quality of a product, instead looking to star rating, competition is increased. McKinsey’s research revealed that consumers’ threshold for minimum star rating varies based on the degree of emotional equity provided by the product.

The article recommends using Natural Language Processing technology to utilize the full impact of Reviews & Ratings, citing benefits such as quicker iteration, increased marketing accuracy, and enhanced product improvement prioritization.

This article, adapted from an episode of The McKinsey Podcast featuring guests Dave Fedewa (McKinsey Partner) and Chauncey Holder (McKinsey Senior Expert), explores the reality of why businesses should prioritize customer Ratings & Reviews, and what they stand to risk if they do not.

The conversation begins with the topic of why Reviews & Ratings are more important now than ever. Reiterating the impact that COVID-19 had on the rapid growth of Reviews & Ratings, and particularly emphasizing the resulting fundamental shift in the shopping process.

Now, consumers don’t need to rely on a brand name to predict the quality of a product. Instead, they can compare a variety of similar products at their preferred price point and use product Reviews & Ratings as their deciding factor.

“Going solely into the store and observing what’s on the shelf or any traditional marketing lever—that’s the old world.” McKinsey & Company Tweet

Although it’s admittedly more difficult to quantify, this transparent shopping experience has also affected the buying process for brick and mortar establishments, with shoppers reading reviews live in-store or prior to arriving.

With buyers turning to Reviews & Ratings to make purchasing decisions, marketers are left wondering whether the effectiveness of marketing campaigns is a thing of the past. The answer is that there is a fundamental paradigm shift occurring.

Now, products speak for themselves. For a poorly made product with low ratings, traditional marketing will no longer suffice. Additionally, this opens up opportunities for new brands with great products to quickly gain a significant market share despite having little brand awareness.

This phenomenon is magnified for certain product categories. Specifically those with emotional value to customers, such as baby products, that deliver both emotional and tangible equity. For these products, the threshold for minimum star rating is notably higher as compared to items with less emotional equity, such as office supplies.

For businesses, this means adopting new workflows to incorporate the influx of rich customer feedback that is now available.

In fact, McKinsey experts Fedewa and Holder both recommend leveraging Natural Language Processing technology through machine learning or, for a more granular approach, artificial intelligence. They explain that this technology aggregates all of the unstructured review texts and clusters them to identify themes and product attributions in order to assign a positive, negative, or neutral sentiment. From this output, businesses can glean a variety of metrics and diagnostic insights to better guide their decision-making processes.

Finally, the article provides three key ways that applying findings from Reviews & Ratings can improve the success of a brand or product:

  1. Iterating quickly: Brands that are agile enough to quickly understand and implement necessary changes or updates will inevitably grow more swiftly than brands that wait for more outdated modes of product evaluation.
  2. Marketing accuracy: With such transparent information available, customers are more likely to have positive feedback for a product experience that matches up with their expectations. Thus, creating marketing and product description language that accurately sets the stage for a product is more beneficial than purely promotional language.
  3. Product improvement prioritization: Using Reviews & Ratings to benchmark brands or products against the competition allows businesses to understand the most lucrative use of product improvement budgeting.

Article 3: Use star ratings to inform durable goods redesigns and spur growth

The Snapshot

Simultaneously, and driven in large part by the COVID-19 pandemic, the market for consumer durables saw an unprecedented surge in overall sales, a large increase in proportion of online sales, and a massive upturn in volume and credibility of Reviews & Ratings.

Now, the surge in total sales is on the decline. However, percent of online sales continues to grow, set to account for 40% of total sales by 2024, and the volume and popularity of Reviews & Ratings continues to increase as well. In fact, star rating has a direct relationship with overall sales and can ultimately boost sales up to fivefold if utilized properly.

What does this mean for brands? Content from Reviews & Ratings is a source of consumer feedback that cannot be ignored when it comes to deciphering product improvements and surpassing the competition.

As of June 2021, online sales were forecasted to represent 34% of consumer durables total sales for the year - a one billion dollar market. By 2024, this number is predicted to increase to 40%.

Simultaneously, driven by the pandemic, during the same one-year period the US cumulative spending on consumer goods surged by $462 billion, 15% above the trend line of the past decade.

Meanwhile, the volume of Reviews & Ratings skyrocketed, seeing an 87% increase within the year.

All at once, the market for consumer durables experienced a massive surge in total sales, an increase in the proportion of online sales, and a rise in the volume of Reviews & Ratings. What does this mean for brands moving forward in this changing economy?

“Companies can analyze and glean insights from star ratings to make strategic choices about changes to product design that, in turn, can lead to higher ratings and increased sales in a virtuous cycle.” McKinsey Tweet

To customers, this peer-to-peer feedback has not gone unnoticed, as star rating now has a direct impact on unit sales.

In fact, as of 2021, each incremental improvement in ratings (for example 4.1 to 4.2) is shown to have a positive impact on sales growth. After surpassing a certain star rating threshold (which varies by product category), an increased star rating can lift sales up to fivefold.

McKinsey's research suggests that once consumer durables reach this star rating threshold, on average 3.8 stars, the average resulting growth in unit sales is a staggering 45%. What’s more, on average, consumer durables with star ratings of 3.7 and above saw revenues five times higher than those with below threshold ratings, representing 90% of total units sold online. Below, see the star rating threshold for sales lift for a variety of product categories.

Screen Shot 2022-05-16 at 8.02.19 AM

Source McKinsey Analysis

As pandemic-driven spending slows and customers become accustomed to the transparent shopping experience enabled by Reviews & Ratings, brands now need to work harder to sustain the growth they experienced in 2021.

This direct relationship between Reviews & Ratings and online unit sales has led leading durable brands to begin mining Reviews & Ratings data for product and customer experience improvement insights. Thus, growth-minded brands are wise to utilize the customer feedback that is fundamentally embedded into customer Reviews & Ratings.

Based on McKinsey’s findings, it’s clear that the return on investment for using Reviews & Ratings to create better products and increase star ratings is high, resulting in increased sales and consumer sentiment.

With this information, businesses have the opportunity to adopt Review & Ratings analytics strategies, such as the aforementioned Natural Language Processing techniques, in order to enjoy this growth cycle. Other benefits include decreased costs, which may look like less spending on focus groups and other promotional activities, as well as increased time to insight.

“Rather than view star ratings as a capricious and unmanageable business risk, however, companies can embrace them for all the valuable insights they provide and use them to design product improvements that hit home in the marketplace—a five-star feedback loop that competitors will envy.” McKinsey Tweet

In Conclusion

Summary of statistics:

  • 10 years' worth of growth experienced by the eCommerce industry during the first quarter of 2020.
  • 87% increase in overall Rating & Review volume from 2020-2021.
  • 75% of Americans have changed their shopping behavior since the pandemic began, and of those 40% have switched brands.
  • 37% of sales growth can be attributed to Ratings & Reviews for brands that experience growth as a result of incremental star rating increases.
  • 34% of total sales purchased online in 2021, forecasted to reach 40% by 2024.
  • $462B surge in spending on consumer goods from 2020-2021, 15% above the trend line.
  • 45% average lift in unit sales when a consumer durable product surpasses a star rating threshold (average 3.8 stars).
  • 90% of units sold online are accounted for by products with star ratings at or above the threshold for their category.

COVID-19 undoubtedly accelerated a shift in consumer behavior, and it’s since become clear that a majority of these changes are here to stay. Reviews & Ratings as a dataset for customer purchasing decisions have quickly become irreplaceable, and businesses have the opportunity to leverage this body of information as well.

Throughout their publications, McKinsey & Company urges CPG and eCommerce companies to adopt a technological foundation for product Reviews & Rating analysis using Natural Language Processing capabilities to understand customer sentiment.

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Article 1: Five-star growth: Using online ratings to design better products

Article 2: Why businesses must heed customer reviews

Article 3: Use star ratings to inform durable goods redesigns and spur growth