International Conference on Economics, Finance & Business, Rome

ELECTRONIC WORD-OF-MOUTH AS MARKET SIGNAL: THE ECONOMIC IMPACT ON CONSUMER SATISFACTION AND DIGITAL MARKET EFFICIENCY IN SOUTH AFRICAN E-COMMERCE

ALYSSA SHAWNTAY WILLIAMS

Abstract:

In digital economies, electronic word-of-mouth (e-WOM) has emerged as a critical mechanism for reducing information asymmetry in online marketplaces, functioning as an informal yet potent form of market signalling. As consumers increasingly rely on peer-generated content (such as reviews, testimonials, and social media commentary) to guide purchase decisions, e-WOM serves as a public good influencing market behaviour, perceived utility, and post-purchase satisfaction. Despite its growing economic relevance, there remains limited empirical understanding of how distinct e-WOM characteristics shape consumer utility and satisfaction - key drivers of demand stability and long-term market efficiency. This study investigates the economic impact of seven e-WOM dimensions (namely, argument quality, source credibility, message usefulness, trust in the message, valence, volume, and existing e-WOM) on post-purchase satisfaction among South African millennial consumers in the e-commerce sector. Employing a quantitative design with 405 respondents, data were analysed using Confirmatory Factor Analysis (CFA) and Structural Equation Modelling (SEM) following rigorous validity and reliability testing. The results reveal that three dimensions function as significant market signals: argument quality demonstrates the strongest predictive power (β = 0.112, p < 0.01), followed by credibility (β = -0.075, p < 0.05) and valence (β = -0.041, p < 0.01). Notably, while credibility and valence show statistical significance, their negative coefficients suggest complex market dynamics where overly credible or extremely positive reviews may paradoxically reduce satisfaction, potentially indicating consumer scepticism toward potentially manipulated content. The overall e-WOM model achieved acceptable goodness-of-fit (CFI = 0.898, RMSEA = 0.055), with individual construct reliabilities exceeding the 0.7 threshold, confirming robust measurement validity. Economically, the findings demonstrate that effective e-WOM ecosystems can enhance consumer welfare by reducing transaction costs and information search expenses. However, the negative relationships observed suggest diminishing returns to overly positive or credible reviews, indicating market sophistication where consumers discount potentially biased information. E-commerce organisations must therefore balance authentic, well-argued reviews rather than pursuing maximum positive sentiment, contributing to more efficient price discovery and reduced market manipulation. This research contributes to behavioural economics and digital market theory by quantifying e-WOM’s complex signalling role within emerging economy contexts. The findings suggest that platform design policies promoting authentic, balanced information flows - rather than simply positive reviews - could enhance market efficiency and consumer protection. While focused on South African millennials, the theoretical framework offers insights applicable to emerging digital markets globally, though cultural variations in trust and credibility perceptions warrant further investigation across different market structures and demographic segments.

Keywords: Electronic word-of-mouth (e-WOM), post-purchase behaviour, customer relationship marketing, Generation Y (Gen Y), millennials