Which is more influential when choosing a hotel room? Is it guest reviews and ratings or price? In a highly competitive market factors influencing consumer's buying decisions are important for revenue managers to understand when setting room rates.
New information from a recent study from SAS and The Pennsylvania State University, "Effects of Price and User-Generated Content on Consumers' Pre-purchase Evaluations of Variably Priced Services ", looked at how user-generated content (UGC) works alongside price to affect perceptions of quality and value, which influence purchase behavior.
Key findings from the study include:
Price is not an indication of quality for consumers
Reviews had a far stronger influence on consumers' perceptions of the quality of the hotel purchase than price. This means hotels can vary price to suit demand patterns (within reasonable boundaries), without damaging consumers' quality perceptions. However, all things being equal, consumers prefer to pay less.
Competing on price alone is not a winning strategy
Merely benchmarking against the competition's price isn't enough. Monitoring UGC about competing service offerings enables management to better evaluate where a service offering stands vis-à-vis its competition – or how consumers perceive the value of their intended purchase. Using these data together helps develop both pricing and operations strategies to gain competitive advantage.
Reviews are preferred for evaluating a hotel purchase
Ratings influence quality and value perceptions. But consumers are much more reliant on reviews to determine the perceived quality and value of a hotel purchase. When review sentiment conflicts with ratings, consumers rely on the sentiment, ignoring the ratings.
Discounting poorly-rated properties doesn't build perceived value
When reviews are negative and ratings are low, consumers perceive no difference in value between low and high price. Therefore lowering the price of a poorly-rated property will not create any additional value in the minds of the consumers. Managers should work on fixing the problem, rather than playing around with pricing.
Social media is part of a powerful shift in consumer buying patterns in the hospitality industry. So how should revenue managers account for UGC in their pricing decisions?
"The power of the consumer review cannot be underestimated in today's market," said Kelly McGuire, PhD, Executive Director of the Hospitality and Travel Global Practice at SAS. "Hospitality managers need to pay particular attention to the sentiment, and content, of reviews, not just for their own service offerings but for their competitors too. Applying SAS Text Analytics to UGC data will help managers evaluate how a service offering compares to its competition in terms of consumer perception. It's clear from this research that UGC is not just the domain of marketing. This intelligence can also be used to help develop pricing and operations strategies to gain competitive advantage."
"Social media has added another layer to the already complicated job of pricing hotel rooms," said Breffni Noone, PhD, Associate Professor at the School of Hospitality Management at The Pennsylvania State University. "The advent of online travel agents (OTAs), such as Travelocity.com and Expedia.com, ushered in an era of price transparency, forcing revenue managers to pay close attention to their price position relative to competitors. With reviews and ratings readily available at the point of purchase another element is interacting with price to influence the purchase.
"Predictive analytics can factor UGC into pricing decisions such as whether to match or undercut competitors' rates on the OTAs. Insights yielded from analyzing the effects of price and UGC on pre-purchase evaluations can inform channel-wide pricing and positioning strategies," added McGuire.
Read also "Pricing in a social world: Five tips for revenue managers" at the SAS blog