I Hear You: Does Quality Improve with Customer Voice?

Abstract

We empirically study whether firms improve their quality based on online customer reviews in a dynamic quality environment. We do so by analyzing the U.S. hotel industry using data from two major online review platforms: Tripadvisor and Expedia. Using management response as a proxy for whether hotels pay attention to consumer reviews and a difference-in-differences strategy, we find that hotels that are more likely to pay attention to reviews increase their ratings more than hotels that do not do so. Moreover, we show that low-rated hotels experience larger gains as they have more margin of improvement than high-rated hotels. We reinforce these findings by using natural language processing algorithms and show that hotels that respond to reviews improve on issues that are frequently mentioned in their reviews. Overall, our results suggest that online reviews provide a useful source of information for firms that can help them improve their quality.

Keywords: Online reviews, Reputation management, TripAdvisor, Expedia, Hotel industry, Sentiment analysis, Sentence embeddings