Restrictions and disruptions related to the COVID-19 pandemic triggered a sharp increase in e-commerce as a percentage of total retail sales. As of June 2021, online sales for consumer durables were forecast to represent 34 percent of total sales for the year.
The US Bureau of Economic Analysis defines durable goods as commodities
—such as vehicles, appliances, electronics, home furnishings, and tools—that are purchased by consumers and used repeatedly over a prolonged period. (As used in this article, “durable goods” excludes vehicles.)
In addition to shifting to online, US cumulative spending on consumer goods surged by $462 billion in 2021—15 percent above the trend line for the past decade—as millions of people were confined to their homes.
Inversely, spending on services dropped by $1.45 billion—3 percent below the trend line—over the same period.
Purchases of durable goods, a market of about $1 trillion in the United States,
were no exception to the trend. A sudden and sizable increase in demand not only stretched supply chains to their limits but also elevated the importance of product pricing, assortment, and other commercial considerations for durable-goods manufacturers.
Meanwhile, a complementary trend—the rapid rise in the number and influence of online consumer reviews—is taking hold. McKinsey analysis revealed that global online consumer reviews jumped 87 percent from December 2019 to December 2020. These reviews, often in the form of star ratings on a one-to-five scale, are an increasingly important driver of consumer goods unit sales and revenue growth.
As such, it behooves companies to use this invaluable consumer feedback to their advantage. The abrupt shift to online prompted consumer goods companies to rapidly accelerate investments aimed at building and scaling their digital capabilities. Amid this feverish wave of activity, however, the growing impact of star ratings may have gone unnoticed.
Companies can analyze and glean insights from star ratings to make strategic choices about changes to product designs that, in turn, can lead to higher ratings and increased sales in a virtuous cycle. Each incremental improvement in ratings—for example, from 4.1 to 4.2 stars—can have a positive impact, and surpassing certain ratings thresholds, which vary by category, can increase sales by up to fivefold.
Consumer reviews, often in the form of star ratings on a one-to-five scale, are an increasingly important driver of consumer goods unit sales and revenue growth.
Finally, as the pandemic appears to slowly recede, economists have begun to anticipate consumers’ return to services markets for travel, entertainment, and many other categories.
For durable-goods companies, this portends the end of the demand windfall they’ve enjoyed for the past two years. Going forward, companies need to pull out all the stops to bolster commercial excellence to sustain the growth they saw during the pandemic. Using star ratings and insights derived from consumer reviews is a proven and scalable path to boost unit sales. This article discusses current economic conditions and their effects on the consumer goods industry—and the impact of star ratings on the consumer durables sector in particular. It also recommends strategies for manufacturers to mine star ratings to make product design decisions most likely to win in the marketplace.
The impact of star ratings on durable-goods sales
Consumers are more likely to purchase durable products than nondurables online. In 2019, consumer durable-goods companies earned 26 percent of revenue from online sales versus 14 percent for those selling nondurables.
From 2010 to 2019, durable-goods revenues from online channels grew 9 percent annually.
By 2024, 40 percent of revenue for durables is expected to come from online sales.
Furthermore, star ratings substantially influence online purchases of household durables. It stands to reason that a consumer will do more online research when shopping for a refrigerator, laptop, or mattress than when buying ephemeral items such as groceries, pet supplies, or health or beauty aids. Although star ratings are just one dimension of consumer research—others include buyers’ guides, company websites, and outreach to friends and family—they are an increasingly important one given their prominence and prevalence in the online experience. Consumers generally trust star ratings, and their trust grows with the number of consumer inputs reflected. Not surprisingly, many websites now allow users to sort product search results by the number of ratings received.
When star ratings for consumer durables go up, they result in more sales growth than for consumer goods overall. As a result, durable-goods manufacturers stand to gain more than other consumer goods companies by taking specific actions aimed at improving star ratings.
According to our analysis of Stackline data,
the expected growth in unit sales driven by a star rating improvement across the growth horizon—beginning with the star rating threshold at which sales start to rise—for consumer durables is, on average, 45 percent. In an important nuance, the growth horizon varies by category and is higher, on average, for durable goods than for other consumer products. The average growth horizon for durables begins at 3.8 stars, compared with 3.4 stars for consumables (Exhibit 1).
In the past two years, durable products with a star rating of 3.7 or higher represented 90 percent of total units sold online. Revenues from consumer durables with ratings of 3.7 or higher were five times higher than those from lower-rated products. Moreover, every one-tenth increase in star ratings translates to a 6 percent increase in unit sales.
Within the durable-goods category, the impact on sales of improvements in star ratings varies. On the high side, sales of home and furniture products jumped by 79 percent by surpassing their growth horizon; sports- and outdoor-equipment sales increased by 75 percent. By comparison, beauty appliances, such as hair dryers and curling irons, saw just a 4 percent increase (Exhibit 2).
Durable-goods manufacturers stand to gain more than other consumer goods companies by taking specific actions aimed at improving star ratings.
In the current inflationary environment, as durable-goods companies contemplate raising product prices to offset price spikes in raw materials, better star ratings can also give companies an edge over those with lower ratings. Over the 12-month period from January 2021 to January 2022, the Consumer Price Index for All Urban Consumers (CPI-U) rose 7.5 percent. This is the largest 12-month increase since the 12-month period ending February 1982.
The Producer Price Index rose a seasonally adjusted 1 percent in January from the prior month, the sharpest rise since May 2021.
Using star ratings to improve product designs
Targeted product improvements that incorporate feedback from star ratings can effectively address negative reviews and lead to higher ratings and sales. A six-step approach can help companies manage online ratings and reviews.
Shift resources toward improving products in collaboration with suppliers. Consider reallocating resources from marketing and promotions to product design and engineering.
Rethink product claims and improve the consumer experience. Companies can sometimes boost star ratings with minor adjustments—for example, by editing product descriptions or user instructions to simplify product assembly.
Manage the product’s digital presence. Provide high-quality photos or videos that show products from multiple angles. Monitor and promptly respond to questions posed by shoppers. Take steps to encourage consumer feedback, especially for products with few reviews, including by leveraging “seed” review programs and other tools offered by retailers. Consider using A/B testing in line with retailer guidelines to understand how to boost the positioning of products in search engine results. Finally, increase spending on up-front advertising to increase clicks, awareness, and initial reviews if the potential return on investment justifies the expenditures.
Establish the technological foundation for analyzing reviews. This includes investing in data sets, data management capabilities, and tools such as natural language processing to mine unstructured data in online comments, videos, return logs, consumer-care call logs, and more. As natural language processors, which interpret written comments, have matured, they are better able to distinguish whether a review is positive, negative, or neutral.
Adopt new ways of working. Incorporating consumer feedback to improve product designs and identify appealing modifications will require a cross-functional team that includes engineering, analytics, finance, and marketing, among others, as well as a shift to organization-wide goals.
Scale the effort. Scan the product portfolio to identify the biggest opportunities, and target the lowest-performing categories or SKUs for interventions to improve designs or functionality.
Consumer durables companies across a range of categories are already mining star ratings for insights to improve product designs. Consider the case of a precision instrument manufacturer, whose consumers were very happy overall with one of its products. An analysis of consumer perceptions revealed that consumers predominantly felt positive across nine product attributes. For two attributes, however—battery life and the product’s accuracy and general quality—consumer perceptions were more negative, and complaints repeatedly appeared in online reviews. Fifty percent of all negative reviews were related to these two attributes. An in-depth analysis of proprietary benchmark data of products in the category revealed that by acting on those negative reviews, the company could improve the product’s star rating from 3.8 to 4.4, resulting in an approximate increase in sales of 17 percent.
Consumers wield more influence than ever in a trend that accelerated during the pandemic and likely will persist. High-volume consumer feedback can lift a product to new heights or tank it as the manufacturer watches in dismay. 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.