Advertising Strategy in the Presence of Reviews: An Empirical Analysis

Marketing Science, Vol. 38(5), p. 793-811, 2019

51 Pages Posted: 29 Nov 2017 Last revised: 14 Oct 2019

See all articles by Brett Hollenbeck

Brett Hollenbeck

University of California, Los Angeles (UCLA) - Anderson School of Management

Sridhar Moorthy

University of Toronto - Rotman School of Management

Davide Proserpio

Marshall School of Business, University of Southern California

Date Written: May 25, 2019

Abstract

We study the relationship between online reviews and advertising spending in the hotel industry. Combining a dataset of TripAdvisor reviews with other datasets describing these hotels' advertising expenditures, we show, first, that online ratings have a causal demand-side effect on ad spending. Second, this effect is negative: hotels with higher ratings spend less on advertising than hotels with lower ratings. This suggests that hotels treat TripAdvisor ratings and advertising spending as substitutes, not complements. Third, the relationship is stronger for independent hotels than for chains, and stronger in less differentiated markets than in more differentiated markets. The former suggests that a strong brand name continues to provide some immunity to reviews and the latter that the advertising response is stronger when ratings are more likely to be pivotal. Finally, we show that the relationship between online ratings and advertising has strengthened over time, just as TripAdvisor has become more popular, implying that firms respond to online reviews if and only if consumers respond to them.

Keywords: online reviews, advertising, TripAdvisor, regression discontinuity, hotels

Suggested Citation

Hollenbeck, Brett and Moorthy, Sridhar and Proserpio, Davide, Advertising Strategy in the Presence of Reviews: An Empirical Analysis (May 25, 2019). Marketing Science, Vol. 38(5), p. 793-811, 2019. Available at SSRN: https://ssrn.com/abstract=3076239 or http://dx.doi.org/10.2139/ssrn.3076239

Brett Hollenbeck

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Sridhar Moorthy

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/~moorthy

Davide Proserpio (Contact Author)

Marshall School of Business, University of Southern California ( email )

701 Exposition Blvd
Los Angeles, CA Los Angeles 90089
United States

HOME PAGE: http://faculty.marshall.usc.edu/Davide-Proserpio/

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