Price Doesn’t Matter If You Have Negative Reviews

Price Doesn’t Matter If You Have Negative Reviews

It takes more than lower prices to succeed in business today in the world of socially connected consumers – especially when it comes to the travel and leisure industry. It takes understanding and managing the power of ratings, reviews and recommendations.

Kelly McGuire, Executive Director of the Hospitality and Travel Global Practice for SAS, discusses findings in report she co-authored called “Pricing in a Social World: The Influence of Non-price Information on Hotel Choices.” There are plenty takeaways for anyone who’s business depends on reviews and ratings being left on sites like TripAdvisor, Yelp, and many others.

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price doesn't matterSmall Business Trends: Before we jump into the research you’ve done, give us a little bit of your personal background.

Kelly McGuire: Sure. I run our Hospitality and Travel Global Practice here at SAS. I really think of myself as an analytic evangelist for the Hospitality and Travel industry. I speak to the market and to our customers about how analytics can really help them survive, thrive and gain competitive advantage. I also work to make sure our solutions meet the needs of the hospitality and travel markets.

I have a Ph.D. in revenue management from the Hotel School at Cornell, so I have a background in hospitality operations and hospitality technology.

Small Business Trends: Now talk a bit about why you teamed up with Penn State to put out this paper, “Pricing in a Social World.”

Kelly McGuire: I come in more from the pricing perspective in the hotel industry; what we’re challenged with in hospitality is, we’ve got a limited number of rooms for sale every night and if we don’t sell them that night, we lose the chance to sell them.

What we realized is it used to be we’d put a price out in the market and worry about what that price was and what our competitors were charging. But lately, there’s now more information in the marketplace about hotels (and that really is all user-generated content ratings/reviews) the consumers have access to when thinking about purchasing a hotel room.

So we were really interested to find out how the consumer’s using that information along with price when thinking about making a purchase.

Small Business Trends: It looks like one of the things that really became apparent in the study was this line around hotels must proactively manage their online reputation.

Kelly McGuire: What we found was while consumers care about price, users generating content have a significant influence on choice. We did a choice modeling experiment where we ran people through a series of scenarios and asked them to pick a hotel out of three. What became clear from the results is that those negative reviews would remove a hotel from the choice set period.

Small Business Trends: It mentions here that consumers only notice high ratings and rankings.

Kelly McGuire: Yes. Using choice modeling, we had the advantage of understanding the importance of the value consumers put on all those different attributes. The most important were the reviews we just talked about. Price was the next most important.

But there were other elements that mattered to consumers in certain ways. And the ratings were one. They didn’t give any value to the ratings unless they were comparing a medium mid-range rated hotel to a high-range rated hotel.

Small Business Trends: People pay more attention to reviews than the actual ratings?

Kelly McGuire: That was overwhelmingly clear in the study.

Small Business Trends: So if you have a strong online reputation, that should help you build the brand – but if you’re already a hotel that people don’t know about but then they only see you showing up in kind of a negative connotation in some reviews, you don’t have a chance.

Kelly McGuire: We did test brands. And brand was only marginally significant as a factor in choice. So what that says to me is: your brand is not going to get you that much mileage anymore.

Small Business Trends: Do you see the trends for recommendations and reviews changing at all?

Kelly McGuire: Folks really are recognizing the importance of the fact that we’re managing reputation, keeping an eye on it, making sure they’re responding to the comments, encouraging folks to write reviews when they’ve had a good experience. But I think what we’ll see as the next step in this industry is the hotels really taking advantage of all that data more broadly than just in the reputation context.

Small Business Trends: Where can people learn more about your research and the things you’re doing in this phase?

Kelly McGuire: I have a blog – the Analytic Hospitality Executive.

This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it’s an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.

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