Cornell study links hotel reviews and room revenue

By Danny King

Hotel roomOnline reviews of hotels are increasingly having an impact on room demand and now appear to be responsible for rate swings of more than 10%, according to a report published by the Cornell University School of Hotel Administration.

The study found a direct link between the rise or fall of revenue per available room (RevPAR) and improvements or declines in the online reputation of a hotel, driven by ratings on sites such as TripAdvisor and Travelocity.

Specifically, a one-point swing on Travelocity’s five-point rating scale on average sways room rates by 11%, according to the 14-page report. Factoring in multiple review sites, a 1% increase in the hotel’s “online reputation score” was found to boost RevPAR by almost 1%, the study found.

Additionally, ratings swings appear to have a greater impact on demand for lower-priced hotels than they do for upscale and luxury properties.

The report’s author, associate professor Chris Anderson, said the variance in online reviews’ impact between lower-end and higher-end hotels probably reflects travelers’ innate confidence in upscale hotels’ service levels, especially when the reviews offer conflicting points of view.

The report is believed to be the first to quantify the effect of online reviews on room rates and RevPAR within the $116 billion U.S. hotel industry.

The subject is of increasing importance to the industry because the combination of the rapid adoption of social media by travelers and the growth in online travel booking means the impact of online reviews will continue to grow.

“As more reservation volume moves online and becomes intermediated by the Web, vs. a person we can ask questions of, then reviews will play an increasing role,” Anderson predicted.

In fact, he said, January 2010 was a “tipping point” of sorts. That month, a Hotel & Motel Management/Market Metrix study reported that more than 50% of potential hotel guests cited an online review as a factor in choosing a hotel, overtaking factors such as location, price and loyalty points.

Two industry analysts, however, cautioned that the results were likely to apply far more to the decisions of leisure travelers booking independent hotels than to business travelers booking the chain hotels that they typically frequent.

Smith Travel Research Senior Vice President Jan Freitag and PhoCusWright Senior Director of Research Douglas Quinby attributed that disparity to the fact that business travelers are far more likely to stay at an upper-end hotel with clear brand standards. They are also less likely to post an online gripe when their company is paying the bill.

“Like all data, handle with care,” Freitag warned.

He added that his company has recently been providing data for what he expects will be a handful of similar studies to be released over the next six months.

“Intuitively, it makes sense,” he said. “But you have to see this through the lens of a leisure-driven result.”

Moreover, Quinby said that “independent hotels and smaller or lesser-known brands are far more susceptible to the impact of ratings and reviews.

Consumers will do more research on hotels where they do not have a clear set of expectations based on the brand.”

Regardless, the Cornell study found that the percentage of customers on hotel websites who checked with TripAdvisor before booking a room increased to 36% in 2010, from 26% a year earlier (see chart below).

Moreover, last month TripAdvisor said that a September poll of more than 2,700 people by PhoCusWright had found that 53% of prospective travelers would refrain from booking a room at a hotel for which no reviews were available on TripAdvisor.

While hoteliers typically consider online reviews an unavoidable menace, consumers’ increasing dependence on them has also pulled some hoteliers into the act themselves.

Last October, Starwood Hotels & Resorts became the first major hotel company to let guests at some of its hotels post reviews online by adding a user-review section to some of its W hotels’ websites. It has since added the feature to hotels across all nine of Starwood’s brands.

And in October, InterContinental Hotels Group said it would start allowing guests to post reviews on websites of hotel brands such as Holiday Inn and Crowne Plaza.

The good news, said both Anderson and Freitag, is that while concerns persist over hoteliers gaming the system by either posting good reviews of their properties or bad reviews of competing hotels, the potential impact of such practices is declining because of the sheer number of ratings minimizes the effect of a bogus review.

What’s more, Freitag said, no one should assume that the importance of online reviews will not also grow within the business-travel sector.

“There is the potential for a travel manager to use [negative online reviews] as a negotiating tool to get a lower rate,” he said.

“But,” he warned, “that can backfire.”

Correction: A previous version of this story incorrectly stated that comScore conducted a TripAdvisor poll. It was PhoCusWright that did the poll.

Follow Danny King on Twitter @dktravelweekly. 

Hotel room photo courtesy of Shutterstock.com. 

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