Review image
415 days ago
 

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

NB: This is a viewpoint from Kelly McGuire, PhD, Executive Director of the Hospitality and Travel Global Practice for SAS, and Breffni Noone, PhD, Assistant Professor at the Pennsylvania State University School of Hospitality Management.

Most industry insiders agree that social media impacts consumer buying behavior, particularly reviews (text descriptions of a hotel experience) and ratings (aggregated score based on individual consumers’ scores).

However, exactly which form of user generated content (UGC) influences consumer buying behavior, 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.

We set out to answer these questions in a recent research collaboration between SAS and The Pennsylvania State University. Our goal was to help hotel managers cut through the information clutter, be able to take action to improve their competitive positioning and positively influence consumer buying behavior.

The research design

Academic research tells us that perceptions of quality and value are the primary drivers of likelihood to purchase. So, understanding how UGC, and price act together on these drivers, means we can understand their ultimate influence on purchase behavior.

We designed the research context based on an online purchase of a hotel room for a weekend leisure trip to a US city center. We told our participants the average price of a four star hotel in their preferred location was $235. We then showed them a description of a hotel, and asked them to evaluate it.

Within the description, we varied the price either low or high relative to the established reference price ($175/$295), varied the aggregate user rating low or high (2.8/4.8 out of 5), and showed a set of ten reviews which were either mostly positive or mostly negative. Everything else was held constant.  This gave us eight different scenarios (Figure 1).  Each participant evaluated only one scenario.

We deployed this online survey to a representative, random sample of the US population. Our demographic results indicated a good spread of ages, incomes, gender and education.

The majority of participants indicated that they use the internet to book hotel rooms the majority of the time, and that they read, and are influenced by, UGC.

The results of the research

Perceived Quality:  We asked consumers to evaluate their perceptions of the quality of the hotel they were shown.

Figure 2 shows the average quality perceptions by scenario (Scale of 1-7 on Figure 2), sorted highest to lowest.

Note that the blue bars represent the high price scenarios and the red bars represent the low price scenarios (see Figure 1 for scenario key). There are two observations to make from this chart:

  1. The four scenarios with the positive reviews have the highest quality ratings (indicated by the P). Statistical testing showed that reviews were the most significant driver of consumer quality perceptions. Ratings did have a statistically significant relationship with quality perceptions, but it was not as strong as reviews.  This means that consumers are relying primarily on the reviews as an indication of the quality of the hotel.

  1. The average quality scores are very similar between the high and low price scenario for each same rating and review level (i.e. LHP and HHP). Statistical testing indicated no significant difference in quality between the low and high price scenarios at each same level of reviews and ratings. This means that in the minds of consumers, price has no impact on perceptions of quality.

Perceived Value:  Value is defined as the tradeoff between what you give (price) for what you get (hotel stay experience), so we would expect price to be on the consumers’ minds as they evaluate value.

Figure 3 shows the average value perceptions by scenario (Scale of 1-7).  As in the previous section, red is the low price and blue the high price.

Interestingly, while we might have expected that the lower price would always represent higher value for consumers (i.e. all four red bars would be lined up first), some high-priced scenarios have a higher perceived value than some low-priced scenarios.

This means that reviews and ratings did influence value perceptions in some way.

Statistical analysis, not surprisingly, showed a significant negative relationship between price and value (as the price increased, value perceptions decreased). However, there was also a significant interaction between price, reviews and ratings on consumer value perceptions, meaning that the UGC altered the magnitude of the negative relationship in some way.

In order to investigate this effect more closely, we split the low and high price scenarios.

The chart at the top of Figure 4 is the high-priced scenarios and the chart at the bottom is the low-priced scenarios. Statistical analysis provided three observations:

  1. In the high price scenarios, consumers looked only to the reviews to determine the value of their purchase – ratings did not change any relationships.

  2. In the low price scenarios, ratings mattered, but only when reviews were positive. Positive reviews/high ratings drove higher value perceptions than positive reviews/low ratings, suggesting that the high rating simply acted as a confirmatory signal for consumers that they were getting a really “good deal”.

  3. Looking at the “worst case scenario” for each price level, when the reviews were negative and the ratings were low, there is no statistical or practical difference in value perceptions between low and high price (the bars on the far right of each chart).  This suggests that lowering the price of a poorly-rated property will not create any additional value in the minds of the consumers.

Our findings suggest the following takeaways:

  1. 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.

    We 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.

  2. 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.

  3. 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.

  4. 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!!

The results of our study confirm the hypothesis that consumers purchase behavior is heavily influenced by user generated content. This study also confirms that it is the reviews, as opposed to the aggregate ratings, that are the strongest influencer of quality, value and ultimately purchase behavior.

While this unstructured text data is more difficult to access and analyze, it is essential in understanding consumer buying behavior, and will ultimately be key in pricing and positioning strategies. Many hotel companies are making such investments, so these results should provide further proof of the importance of such investments.

There is more to learn about how consumers make tradeoffs between price, quality and value perceptions (and our research continues). What is clear is that the presence of UGC has moved us from an environment of price transparency to value transparency – and so to remain competitive, hoteliers must incorporate this content into their strategic and tactical decision making.

NB: This is a viewpoint from Kelly McGuire, PhD, Executive Director of the Hospitality and Travel Global Practice for SAS, and Breffni Noone, PhD, Assistant Professor at the Pennsylvania State University School of Hospitality Management.

NB2: Review image courtesy of Shutterstock.

 
 
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  1. Chris Mullins

    Great post. I think my favorite takeaway is “It’s hard to overcome “bad” UGC”. I do have one question though, how many people were surveyed?

     
  2. Delinda

    Thanks for sharing. Where I can get the original report?

     
    • Kelly McGuire

      Below is the citation for the orginal research, published in an academic journal. Thanks for your interest!

      “Effects of Price and User-Generated Content on Consumers’ Prepurchase Evaluations of Variably Priced Services” Breffni M. Noone and Kelly A. McGuire, Journal of Hospitality & Tourism Research, 1096348012461551, first published on February 27, 2013

       
  3. Conrado

    John, Kelly

    Thanks both for the insight! Really appreciate it

     
  4. Ellis

    Kelly- one thought to add here…

    When we work with our clients establishing the best practice of including reviews(their own or UGC) on their brand.com sites, we talk about 2 main points:
    #1 transparency = trust = more direct bookings
    #2 properties/brands/chains spend a good amount of money to drive consumers to their sites via ppc, seo, etc. When they get there, you need to keep them in your website’s ecosystem, so they don’t leave to check other review sites or OTAs. Having reviews visible, especially if they are from multiple channels will establish trust >>> see #1. Here is a client example of what I described above. http://www.trumphotelcollection.com/las-vegas/vegas-hotel-testimonials.php

     
  5. Kelly McGuire

    Conrado – I don’t have any resesarch evidence to support an answer to your question – just what I’ve heard. Many industry experts argue that reviews should be a part of the hotel’s own website, as it shows transparency that consumers have come to expect in a social world. However, I have heard from some hotel companies that have tried this that including reviews actually decreased conversions because it introduced some uncertainty to the decision at the last minute. If I were you, I would think about the kinds of consumers that use the hotel website – are these consumers who have come pretty close to making a decision that they want to book with you. If that’s the case, the “upside” of having reviews there might not be outweighed by the “downside” of introducing an element that may cause them to rethink their decision. If they are still in the research process, then reviews (assuming they are mostly positive) could push them into making a decision to book, and that would be a good thing.

    I would love to hear what others think about this issue…

    Kelly

     
    • John Pope

      Transparency can only be good thing long-term.

      As far as the Zero Moment of Truth issue, again, long-term I believe the audience would still have a positive reference point for the/your site if reviews are included (which is more important, value wise, than a one off purchase) – no matter if the single transaction may be sacrificed, long-term value of the customer should also be considered.

      Also, there is an opportunity for collecting valuable user data with the inclusion of reviews, or a possible A/B Testing environment to see what exactly is best for your particular audience. No two audiences or users will always be the same.

      More and more consumers also demanding reviews these days, as Kelly referred to above.

      My view, Conrado = in general, +10 for reviews. It’s a no brainer.

       
  6. Conrado

    This is a great post! Thanks a lot for sharing it..

    I’m searching for hotel web design best practices. According to this post we should have on the hotel websites both update reviews and booking widget as two main section of the website? What do you think?

    Thanks!

     
  7. John Pope

    Agreed, a very interesting read.

    One thing I’d also query is, does perception match reality?

    As the control group knew this was a hypothetical exercise, were their opinions skewed by the fact that they weren’t actually having to pull the trigger and enter their credit card details?

    If they know they’re not actually paying for the hotel – or actually traveling – it only makes sense that they’re likely to “perceive” the best reviewed and highest rated options, rather than including the “real life” added decision of having to pay for their preferred option.

    As price was only a variable that the control group had to hypothetically consider, it holds that price would not actually be as relevant if they were hitting the “Make Reservation” button.

    It’s a shame the study wasn’t able to gain access to a real world environment – like Tripadvisor through to conversion metrics from suppliers or 3rd parties – in order to properly indicate if there was a difference to reality.

    I’d also agree with Robert’s contextual variables playing a part in real world decision making.

     
    • Kelly McGuire

      John,

      Good points here. We decided to use the methodology for this study because it allowed us to control for all of the noise in the real world environment to get at just the effects we wanted to test. Clearly, complexities in a live booking environment would influence the relationships. However, we did see evidence here that consumers pay attention to price, and that “all things being equal” they would prefer to pay the lower price – so they still exhibited some price sensitivity in this study as they would in the real world. While the effects may not be as strongly felt in a real booking environment (which includes the factors that Robert discusses above), I feel pretty confident in saying that relationships would still hold (reviews and ratings playing a strong role in value and quality perceptions).

      Now that we have a better understanding of how consumers use this information, we are working on a follow up study that would include a real world booking environment (and some of the other choice factors that you and Robert bring up).

      Glad you found the article interesting!

      Kelly

       
      • John Pope

        Cheers, Kelly.

        I’ll be intrigued to find out how Behavioral Economics plays a part in the outcomes of your future real world study.

        It appears you guys are doing some great work on a big industry/digital media topic – one that will be referenced for years to come, I’m sure.

        Kudos.

         
  8. RobertKCole

    Great stuff – very interesting data & results that describe the value equation used by leisure travelers for weekend trips. Great directional insights – especially regarding the need to eliminate dissatisfiers.

    It is also important to note that once something is fixed, considerable time may be required for the market to digest the score improvement.

    In my experience however, there are four additional factors that are very important within the guest value equation:

    – Proximity
    – Facilities
    – Brand Familiarity
    – Price Differential

    The convenience of the hotel’s location, perhaps if it offers free wifi, parking or a pool, the guest’s experience/perception of the hotel brand and the pricing of alternative hotel options also weighs heavily in the selection process for a specific hotel.

    It should also be noted that the weighting of all these factors may be very different due to the nature of the weekend trip – for example, general sightseeing, visiting friends or attending an event. The party composition is also critical – a family weekend decision is very different when compared to a couple’s romantic getaway.

    Everyone conceptually aspires to book the best available rated, top reviewed property at the lowest possible price, but the ultimate property selection decision may often come down to deciding if a better location is worth the extra $25.00 per night, or if the hotel lacks a pool, will the parents go insane when the kids can’t burn off some energy before bed…

    Also, one additional point is that hoteliers need to be very careful of assuming a halo effect that these same dynamics apply to other market segments. Unmanaged business travelers, SMERF conference attendees or vacationers will apply different value equations.

    For resort bookings, additional considerations like personal perception of travel packages or all-inclusive resorts also weigh heavily in the value equation.

    Finally, it should also be noted that the weighting of all these factors represents an intensely personal decision. To properly manage these dynamics, hoteliers need to adopt an itinerary-centric persona basis for decisions governing these tactical pricing, promotion and channel decisions – understanding their competitors are watching and reacting.

    It is very important to remember that an individual traveler will often embody a variety of personas – the same unmanaged business traveler may attend a conference, book romantic getaways or a family weekend in the city.

    That is the reason that detailed reviews are currently more helpful than a generic aggregated rating. People want to know if people like them (not just demographically, but psychographically) traveling for a similar purpose endorsed that hotel.

    For example, TripAdvisor, with its sub-categorization of reviews by traveler type and rating attribute, compounded by its Facebook social graph integration, is capturing incredibly relevant information that most hotel brands lack – especially for those who are not frequent guests. OTAs are also capturing this information – most importantly, across multiple brands and destinations.

    OTAs & meta-search sites understanding guest demand dynamics better than hotel companies is problematic for the hotel operators. In many cases, an OTA market manager may be able to advise a hotel on pricing strategies that will satisfy budgetary goals. However, that strategy will be subject to the OTA’s margin demands – perhaps a fair trade in exchange for superior business intelligence.

    The consideration a property’s semantic relevance at the individual traveler itinerary level – and its relative positioning within a potentially dynamic competitive set will ultimately need to be understood by the hoteliers and translated into data points incorporated into pricing algorithms. My guess is that this is going to get harder before it gets easier.

    Don’t take my comments as negatives regarding the study – it IS great stuff. It’s just my prediction that the future of revenue management will wind up becoming even more complicated as social media and personalization grow in importance.

    Unfortunately there are currently no easy answers and in the future, those answers are going to get even more complex.

    I look forward reading your future research.

     
    • Kelly McGuire

      Robert,
      I appreciate the lengthy feedback! I completely agree with your points about the need to fully understand how consumers trade off all information about their hotel purchase against the price. In fact, our next study deals with this issue – and we add more variable such as brand and TripAdvisor rank. You can access the academic paper here: http://www.palgrave-journals.com/rpm/journal/vaop/ncurrent/full/rpm201313a.html. I should have some industry publications on this out soon.

      I think you make a good point about why consumers are so focused on reviews. As we mention in the article, the uncertainty associated with the experience would lead consumers to gather as much information as possible – but the crucial component of assessing whether the reviewer is “like” them is also a factor that probably requires more thought/research. We are conceptualizing a study to cover those kinds of issues.

      I am also very intrigued about the issue of incorporating UGC in the pricing algorithms. I am still on the fence about whether this detail belongs in the day to day price setting proceedures, or if, as you allude to above, the sentiment doesn’t change often or fast enough to warrent it being a tactical input. It’s possible that this may belong in the strategic decision making of competitive positioning and channel management. I look forward to working on that more as well.

      As you rightfully suggest, this is a very complex problem, and it will only get more complex. This study is just the beginning!

      Kelly

       
  9. Ellis

    Great read, Kelly.

     
    • Nick Vivion

      Nick Vivion

      They did a fantastic job at analyzing these behaviors, showing another way that data-driven decisions are paramount for analytic hospitality execs.

       
 
 

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