Recent reports indicate that a majority of consumers trust online reviews as much as personal recommendations when deciding to book a hotel. A 2019 study by TripAdvisor.com—a popular social media platform for hotel reviews—found that 81% of users “usually” or “always” refer to user reviews before they make a booking. Among those surveyed, 52% said that they would never book a hotel that had no reviews.
Understanding how a hotel’s user reviews compare against the competition can help it make better pricing decisions without dropping occupancy numbers and affecting revenue. However, it is not clear how the effect of competitor reviews on a hotel’s demand compares to the effect of the hotel’s own reviews. It is also hard to ascertain when competitor reviews have a larger impact on demand for the hotel than the hotel’s own reviews.
The Importance of Competitors’ Reviews
In a new Journal of Marketing study, we investigate the impact of online reviews on hotel booking performance with a specific focus on the competitive effects of reviews. Our research team examines review-based competitive effects, utilizing actual hotel booking data at an individual booking level. Analyzing proprietary data from six branded upscale hotels in six major U.S. cities across three years—along with numerical ratings and review text from TripAdvisor—we investigate the effects of competitor hotel prices and a hotel’s own prices.
Our results indicate that both the online reviews that a hotel receives as well as those that its competitors receive have a significant effect on its bookings. If a hotel’s own sentiment score on a five-point scale were to improve by 1%, it can realize a .38% increase in its bookings at average price. At the same time, an improvement in its competitors’ sentiment score by 1% could decrease its bookings by .25%. In addition, for a hotel that charges high prices, an improvement in its own sentiment score by 1% results in a .54% increase in its bookings, while an improvement in its competitors’ sentiment score by 1% results in a .34% decrease in its bookings.
Lessons for Hoteliers
Our study offers several insights for hoteliers and Chief Marketing Officers:
- Both prices and online reviews of a hotel can significantly affect consumers’ booking decisions and the number of bookings a hotel realizes.
- Apart from a hotel’s own review scores, its competitors’ scores can impact bookings—and this impact is even higher if the volume of reviews is high. Thus, hotel managers must evaluate and improve their scores relative to the competition.
- Different consumer segments show different booking behaviors depending on the interplay between prices and reviews. For instance, leisure travelers are more influenced by a hotel’s prices, whereas business travelers are more sensitive to online reviews and are primarily concerned with comfort and quality. Hotel managers must develop (or adjust) their strategies according to the needs of nonhomogeneous consumer populations.
- Reviews in which consumers need to rely on the experiences of others to assess the quality of the experience in a hotel have more impact than a search attribute such as location, where information can be obtained directly from a hotel’s website or some other external source. The impact of review sentiment by consumer segment and by review content can help hotel managers understand where to direct their efforts in responding to reviews and addressing consumer concerns.
Additionally, if the hotel’s prices are perceived as high, they may see a larger drop in bookings as a result of more negative reviews or its competitors’ more positive reviews. Hotel managers must evaluate their review scores in conjunction with their prices and incorporate review scores into their marketing strategies. Although most hotel chains employ sophisticated dynamic pricing, we are seeing some initial movement toward incorporating nonprice data into pricing decisions. Our study provides empirical evidence to support the significance of the interplay between reviews and prices, and it shows that this might change by consumer segment and review content.
Our findings can provide hoteliers with new insights on the effect of online reviews and review sentiment on hotel demand and serve as a valuable resource when incorporating the effects of their own and their competitors’ reviews into pricing strategies and other marketing activities.
Read the Full Study for Complete Details
From: Sanghoon Cho, Pelin Pekgun, Ramkumar Janakiraman, and Jian Wang, “The Competitive Effects of Online Reviews on Hotel Demand,” Journal of Marketing.
Go to the Journal of Marketing
Sanghoon Cho is Assistant Professor of Business Analytics, Texas Christian University, USA.
Pelin Pekgün is Dean’s Fellow and Associate Professor of Management Science, University of South Carolina, USA.
Ramkumar Janakiraman is Professor of Marketing Analytics, North Carolina State University, USA.
Jian Wang is Vice President of Data Science, RealPage, USA.