Where Do the Joneses Go on Vacation? Social Distance and the Influence of Online Reviews on Product Sales

Abstract

This paper provides field evidence that social distance between customers and reviewers influences the impact from online reviews on product sales. We conceptualize information on interpersonal similarity as a heuristic cue that helps customers to infer similarity in product preferences between reviewers and customers. We hypothesize that customers put less weight on information from socially distant others. We test this hypothesis on an extensive dataset of 60,000 hotel-week observations from a large online travel and holiday portal. The data allows for measuring interpersonal similarity in a clean way, because reviewers need to specify whether they traveled as couples, families, or singles, and reviews can be traced back to corresponding bookings. Therefore, we know for each reviewer, if at the time of booking her peers were couples, families, or singles. Our results provide strong empirical support for our hypothesis. For example, singles increase hotel demand by 18% in response to positive peer information, but discard family information. We conclude that firms’ management of online reviews must reflect on social distance between reviewers and target customers.

Keywords: social distance, online word of mouth, heuristic processing, hotel bookings