The Impact of Online Reputation on Hotel Profitability
International Journal of Contemporary Hospitality Management, Vol. 32, No. (1), pp. 20-39, 2020
26 Pages Posted: 23 Aug 2019 Last revised: 22 Jan 2020
Date Written: August 21, 2019
Purpose: The purpose of this study is to quantify the impact of online customer reputation on financial profitability.
Design/methodology/approach: Online reputation is captured by extracting the most recurring textual themes associated with customer satisfaction and dissatisfaction, expressed within positive vs. negative online guest reviews on Booking.com. Latent Semantic Analysis is used. Proxies of overall financial performance are manually constructed for the sample hotels, using financial data from the FAME (Financial Analysis Made Easy) database. Ordinary Least Squares is employed to gauge the effect of online customer reputation on financial profitability.
Findings: Empirical findings indicate that recurring textual themes from positive online reviews (in contrast to negative reviews) exhibit a higher degree of homogeneity and consensus. The themes repeated in positive, but not in negative reviews, are found to significantly associate with hotel financial performance. Results contribute to the discussion about the measurable effect of online reputation on financial performance.
Originality/value: Contemporary quantitative methods are used to extract online reputation for a sample of UK hotels, and associate this reputation with bottom-line financial profitability. The relationship between online reputation, as manifested within hotel guest reviews, and the financial performance of hotels is examined. Financial profitability is the result of revenue, minus cost incurred in order to offer a given level of service. Previous studies have mainly focused on basic measures of performance i.e. revenue generation, rather than bottom-line profitability. By combining online guest reviews from travel websites (Booking.com) with financial measures of enterprise performance (FAME), this study makes a meaningful contribution to the strategic management of hotel businesses.
Keywords: Quantitative content analysis; online hotel reviews; eWOM; hotel reputation; Latent Semantic Analysis; hotel performance
JEL Classification: M41, L83, Z30, C80
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