Classroom Companion: Business

Box 1.1 Recommendations as Market Feedback
Recommendation and consumer feed-
back are key features in the digital econ-
omy. This often generates strong network 
effects resulting in more customers and 
more sales and may, sometimes, even 
lead to de facto monopoly business.
Feedback from consumers can either 
be gathered directly from the consumer 
or indirectly by observing consumer 
behavior. One example of direct user 
feedback is when a consumer is asked 
to rate or comment on a product or ser-
vice after purchase. This information, 
together with other information the 
retailer may gather about the consumer, 
can then be used to increase the sales 
by recommending other products to the 
consumer (see 
.
Fig.
1.4
). Harvesting 
1.2 · Definitions

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information about the consumers, both 
directly and indirectly, is a core activity 
in the business model of many compa-
nies in the digital economy.
Reviews and feedback also serve 
another important role: they build trust 
in the shopping experience since the cus-
tomer can read reviews and feedback 
from other customers. Such feedback 
helps remove information asymmetries 
in the digital economy. Encouraged by 
feedback and reviews from other cus-
tomers, potential new customers will be 
better informed regarding the product 
they are about to buy.
An example of indirect user feedback 
is when Google is used for web browsing. 
Google may then use the search results to 
build up a user profile so that more and 
more accurate advertisements can be 
directed toward the user. This increases the 
value of Google as a provider of advertise-
ments. The importance of indirect feed-
back is even more evident for Facebook 
where use of the “like” button, analysis of 
texts produced by the user, network of 
friends, and user activities are run through 
algorithms to build an accurate picture of 
the personality of the user. When you buy 
books from Amazon, they also recom-
mend other books that may interest you. 
This is based on information stored about 
books you have previously bought or 
shown an interest in and on books bought 
by other customers with apparently similar 
interests.
Consumer buys 
from
a retailer 
The retailer identifies
similar products 
Similar products are
recommended to the
consumer for purchase
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. Fig. 1.4 Recommendation system. (Authors’ own figure)