July 12, 2013

Price, reviews and ratings: How consumers evaluate a hotel room purchase in a social world

Most hotel marketers agree that social media impacts consumer buying behavior, particularly reviews and ratings. However, the degree to which it influences the decision making process, and how it interacts with the price of the hotel room has been the subject of much debate.

Findings from a recent research collaboration between SAS and The Pennsylvania State University suggest the following takeaways:

- Reviews are the most powerful quality and value indicator for consumers: Our research overwhelmingly indicated that consumers look to the reviews over aggregate ratings to form quality and value perceptions.

This runs counter to some theoretical arguments that suggest that consumers are “information misers”, preferring a metric that’s easier to consume (like an aggregate rating), as opposed to the information-rich review.

The research hypothesize that the uncertainty associated with the hotel experience leads consumers to want to gather as much information as they can to mitigate this uncertainty. Hotel managers must not only understand their review sentiment, but also that of their direct competition, in order to successfully position themselves in a highly competitive market.

- Competing on price alone is not a winning strategy. While consumers prefer to pay the lowest price, they will look closely at your UGC, and that of the competitors, when making a purchase decision. This means hotels can’t undercut (or raise) price simply based on the price movements of the competitors. Managers must also understand how their UGC compares, evaluating consumers’ total value perception of their hotel versus the competition.

- In the presence of reviews (and ratings), consumers do not use price as an indication of quality. This is good news for revenue managers, because it means that they can play around with price (within reasonable bounds) to generate short term demand, without impacting consumers long term quality perceptions.

- It’s hard to overcome “bad” UGC: Our results indicated that lowering the price of a badly rated, and negatively reviewed, property drives no additional value in the minds of the consumer. If a hotel happen to be in that unfortunate position, they should keep the price up, and take what they can get – which according to our results won’t be much. Our recommendation for these properties is to focus on fixing the problems with the property instead of worrying about how it is priced!!

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