When competing in online marketplaces, business owners need to treat categorisation as a central aspect of their positioning strategy, says Karl Taeuscher.
For businesses competing in online marketplaces, reputation is everything. Whether selling software on an app store, services on a freelance platform, or electronic devices on Amazon, a string of negative reviews can be devastating.
When receiving negative reviews, the first instinct for most business owners is to focus on improving their product or service. This reaction is understandable, but new research shows that it often misses the real issue.
Customer satisfaction
Customer satisfaction is rarely an objective measure of quality. Instead, it is a measurement of expectations versus reality. Across many online marketplaces, customers form those expectations not only from the photos and descriptions they see, but also from the product’s category. When those expectations don’t line up with what the business actually offers, disappointment is almost guaranteed, even when nothing is wrong with the product itself.
On a platform like Airbnb, for example, categories do more than help customers filter results. They quietly signal the types of amenities that customers can expect from a listing in that category. A ‘loft’ suggests high ceilings and industrial details, whereas a ‘cottage’ conjures images of warmth and rustic charm. If a listing does not fit these expectations, guests can feel misled, even if the property matches its photos perfectly.
Research
This dynamic sits at the heart of new research from myself and colleagues from the University of Oxford and the University of Alberta in Canada, where we analysed more than 110,000 Airbnb listings over several years.
Using AI to classify millions of customer reviews and tracking Airbnb hosts’ behaviour over a three-year period, our study found that a significant share of negative reviews arose not because of issues with the accommodation itself, but because it did not match what guests expected of listings in that category.
The study revealed that hosts choose a category when they first create their listing and rarely revisit the decision afterwards, unless negative reviews make them question whether their property may be positioned in the wrong category.
The issue is most common in heterogenous categories in which customer expectations vary widely. For instance, a ‘loft’ in one city might be a converted warehouse. In another, it might simply mean an open-plan apartment.
When expectations about a category are ambiguous, guests arrive with their own interpretation of what they booked, and hosts have little control over which version of that category the guest had in mind. The study showed that, when they received negative reviews, hosts were particularly likely to move their accommodation out of such heterogenous categories.
Aligning expectations and reality
For business owners who rely on online marketplaces, these insights matter far beyond Airbnb. Whether selling handcrafted goods, software tools, or professional services, the category a business selects often acts as a promise about what customers can expect and those expectations strongly influence how satisfied they feel with the experience. When that promise is even slightly off, frustration follows.
The good news is that business owners can usually fix such mis-categorisations once they become aware of them. Positioning an offering in a better-fitting category can immediately reduce the gap between what customers expect and what they actually find - often without the need for costly improvements of the product or service itself.
Strategy
When competing in online marketplaces, business owners should therefore treat categorisation as a central aspect of their positioning strategy. Rather than a one-time decision, category choices are worth revisiting as offerings evolve and as categories themselves change over time.
While negative reviews are never pleasant, they can serve as valuable signals that the product sits in the wrong category. Adjusting the category, rather than the product, can set more realistic expectations from the start, leading to more satisfied customers and fewer surprises on both sides.
Read Karl's research paper: Right on Cue? Category-switching in online marketplaces >>
