Now that online reviews and ratings are widely available at the point of purchase, consumers have access to a new source of information to inform their purchase decisions.
Understanding how consumers use this information (alongside price) to make a purchase decision will help hoteliers better price and position their product in an increasingly competitive marketplace. This is the question that we set out to answer in a series of studies on different consumer segments in the hotel industry.
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.
Recently, we published the results of our studies on leisure travelers, establishing that, while leisure travelers prefer to pay the lowest possible price, they do rely heavily on reviews (to a lesser extent both ratings and TripAdvisor rank) and will not select a hotel that has negative reviews, no matter how low the price.
These results reinforced the importance of paying attention not only to a hotel’s reputation and price, but also that of the competitors in the market.
While the leisure traveler is certainly important to many hotels, the unmanaged business traveler is also a crucial, and highly valuable, market. Since the travel motivation is different, it is likely that business travelers react much differently to price and user generated content. Clearly, if this is the case, strategies designed for the leisure market will not be effective for the business traveler.
The study
We used the same choice modeling framework from our leisure traveler study, but changed the context to business travel.
In a choice modeling study, the participants are offered a set of options with varying levels of the test attributes. They are asked to pick their preferred option. By tracking patterns of choice across multiple trials, the researcher can statistically determine which attributes, and which levels of those attributes are influencing value perceptions and choice behavior.
For this study, participants were told that they were attending a meeting in a city center, and they needed to reserve a hotel. We presented three hotels with different levels of attributes described in Table 1 below, and asked them to pick which hotel they would book for this business meeting.
Since we knew location, class of service and amenities would be influential, we told the participants that these attributes were equivalent across the hotels in the set.
The only change we made to the business traveler study was to account for their loyalty program affiliation. We were recruiting business travelers that traveled more than six times a year, and that had control over where they stayed (i.e. not controlled by a highly restrictive corporate travel policy).
We hypothesized that these travelers collected points and status with their frequent travel, and therefore, could be influenced by their loyalty affiliation.
Including this variable would allow us to test how strong this affiliation would be against price or user generated content. We asked our participants to identify a preferred brand associated with one of the major hotel loyalty programs that cater to business travelers, and used that preferred brand against the unknown and known brands in the study.
Figure 1 represents the demographics of the business travelers in this study. They were predominantly male, with about half of them traveling 6-10 times per year, and the majority staying at least two nights per trip.
Attribute importance
The first step in the analysis of a choice modeling experiment is to determine which attributes the study participants paid attention to and which were most important in influencing choice.
The business travelers used the following attributes in order of importance:
Review Sentiment (Positive, Negative) Brand Aggregate rating Price Review Language (emotional, descriptive)
In contrast, the leisure travelers looked at the following attributes in order of importance:
Review Sentiment Price Aggregate Ratings TripAdvisor Rank Brand
Surprisingly, review sentiment came out as the most influential in choice for both groups. After that, probably less surprisingly, leisure travelers cared about price, whereas the business travelers cared about brand.
Assessing value from attribute levels
Another output of the choice model is a measure of the impact on value associated with each level of the attributes in the study. This allows you to see how changing the attributes influences value perceptions, and ultimately drives choice. It also explains why the attributes fell into the order they are listed in above.
An analysis of the impact of the attribute levels on value for the business travelers reveals:
Review sentiment: Not surprisingly, negative reviews have a strong negative impact on value perceptions. This explains their position as most influential on choice. Brand: There was a slight increase in value perceptions associated with a known brand over an unknown brand, but a large increase in value perceptions associated with a preferred brand over a known brand. This shows the power of that loyalty affiliation in choice behavior. Aggregate ratings: While there was a positive impact on value perceptions as aggregate ratings increased at all levels, the impact of a mid-range rating over a low rating was actually greater than the impact of a high rating over a mid-range rating. This means that business travelers cared more that the hotel was OK, than if it was great. Price: There was a negative impact on value when the price was raised above the low price, but no impact on value between the mid-range and high price. This means that business travelers noticed a deal, the lowest price in the market, but were relatively insensitive to other price differences. Review language: There was a slight increase in value associated with reviews that were descriptive over emotional. This means that positive or negative, business travelers wanted to understand how the experience would be for them.
Comparing these results to the leisure traveler study showed a much stronger effect of more attributes. The leisure travelers were driven by review sentiment and price, and barely influenced by ratings, ranking and brand. Business travelers were more strongly influenced by nearly all of the attributes, weighing sentiment, brand, aggregate ratings and price against each other when making choices.
Two other findings stand out in this analysis
First, it appears that business travelers are using the available information to assess whether the hotel will be “good enough” or OK, not whether it will be great. They seem to be balancing what the user generated content tells them against their ability to earn points for the stay.
Secondly, business travelers noticed, and valued, the low price. The industry tends to assume that business travelers are not price sensitive, but this result shows that there is something in human nature that responds to a deal, even if you aren’t using your own money.
Assessing overall value
Choice modeling also allows you to assess the overall value of a hotel with selected combinations of attribute levels. This analysis helps to put the results of the attribute level analysis in context of overall value and also describes consumer choice behavior.
We will present a series of equations below that represent a possible hotel option from the study, with the overall value associated with that option. Pay attention not to the absolute value of the result, but rather, how that result changes as the attribute level changes.
The equation below represents the ideal combination of attribute levels for a business traveler, in order of attribute importance:
–> Positive Reviews + Preferred Brand + High Rating + Low Price + Descriptive Reviews = 1.52
With this set of attribute levels as a baseline, we can manipulate the attribute levels and track their impact on overall value.
The below equation represents overall value when the price is raised from lowest to highest, holding everything else constant. You can see that the overall value is impacted slightly, but not by very much. This is not surprising since the price was only the fourth most important attribute to business travelers, and it was only the low price that the business travelers valued.
–> Positive Reviews + Preferred Brand + High Rating + High Price + Descriptive Reviews = 1.25
In the leisure study, price was the second most important attribute, so we would expect the impact on value to be greater.
The equation below is the ideal option for the leisure traveler.
–> Positive Reviews + Low Price+ High Rating + High TARank+ Known Brand = 1.95
The next equation shows the impact of raising the price from low to high for this group. Leisure travelers are clearly highly price sensitive. The overall value drops significantly when the price goes from low to high.
–> Positive Reviews + High Price+ High Rating + High TARank+ Known Brand = 0.46
Now look at what happens when the most important attribute for each traveler changes. Holding everything constant from the baseline, the first equation below demonstrates the impact of negative reviews on overall value for business travelers, and the second for leisure travelers.
–> Business: Negative Reviews + Preferred Brand + High Rating + Low Price + Descriptive Reviews = 0.69
–> Leisure: Negative Reviews + Low Price+ High Rating + High TARank + Known Brand = 0.01
You can see here that the impact on value for business travelers over the baseline was quite significant, nearly half of the value is lost when the reviews are negative as opposed to positive.
However, for the leisure travelers, all of the value is lost when reviews are negative. Business travelers clearly pay attention to reviews, but they are willing to balance that against other attributes like brand and rating. Leisure travelers simply wont consider the hotel if the reviews are negative.
Key takeaways
There are three key takeaways from the business traveler study that hotel managers should consider when setting pricing and positioning strategies:
Reviews matter: Business travelers want to know what the experience will be like, and they look to the reviews to tell them that. They are negatively influenced by negative reviews, and prefer to see a description of the experience to help them assess. Loyalty matters: Business travelers are driven by loyalty affiliation to their preferred brands. They appear willing to put up with “OK” as long as they can get their points. Price matters: While business travelers are not price sensitive in general, they do respond to a deal. The lowest price in the market will get their attention.
Business travelers traded off extensively among review sentiment, review language, price, brand and ratings when making a choice. None of the attributes appeared to be a “deal breaker”, as negative reviews were for the leisure traveler.
This means that hotels must clearly understand their reputation and price position in the market, and use this with brand and market conditions to know which levers they can pull to attract this valuable segment.
For example, an “unknown” brand in the market with a better reputation than the “big brands” with strong loyalty programs could attract some business traveler demand, particularly if they offer the lowest price in the market.
Interestingly, a hotel with a strong loyalty program might be able to get away with being “OK” (i.e. not investing in renovations, for example), for a while (closely monitoring their UGC to ensure they don’t cross a tipping point with their guests).
Figure 2 below compares the results of both studies.
Clearly, hotelier’s jobs are not getting any easier. Not only do hotels need to pay attention to their reputation and price as compared to the market, but they also need to evaluate that against the segment mix and the hotel’s business strategy.
The job is getting too complicated to rely on reports or gut feel. In order to balance these complex effects, hotels will need to invest in advanced reputation and revenue analytics – as well as the experience of a strong marketing and revenue management team – to remain competitive in today’s 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.
NB2: Computer megaphone image courtesy Shutterstock.
