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The influence of e-word-of-mouth on hotel occupancy rate

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 International Journal of Contemporary Hospitality Management
The influence of e-word-of-mouth on hotel occupancy rate
Giampaolo Viglia Roberta Minazzi Dimitrios Buhalis
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Giampaolo Viglia Roberta Minazzi Dimitrios Buhalis , (2016),"The influence of e-word-of-mouth on
hotel occupancy rate", International Journal of Contemporary Hospitality Management, Vol. 28 Iss 9
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The influence of e-word-of-mouth Hotel

occupancy
on hotel occupancy rate rate
Giampaolo Viglia
Bournemouth University, Poole, UK
2035
Roberta Minazzi
Department of Law Economics and Cultures, University of Insubria, Received 15 May 2015
Revised 24 August 2015
Como, Italy, and 14 November 2015
Accepted 12 February 2016
Dimitrios Buhalis
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School of Services Management,

International Centre for Tourism and Hospitality Research,
Bournemouth University, Poole, UK

Abstract
Purpose – Online consumer reviews have become increasingly important for consumer decision-
making. One of the most prominent examples is the hotel industry where consumer reviews on websites,
such as Bookings.com, TripAdvisor and Venere.com, play a critical role in consumers’ choice of a hotel.
There have been a number of recent studies analyzing various aspects of online reviews. The purpose
of this paper is to investigate their effects in terms of hotel occupancy rates.
Design/methodology/approach – This paper measures through regression analysis the impact of
three dimensions of consumer reviews (i.e. review score, review variance and review volume) on the
occupancy rates of 346 hotels located in Rome, isolating a number of other factors that might also affect
demand.
Findings – Review score is the dimension with the highest impact. The results suggest that after
controlling for other variables, a one-point increase in the review score is associated to an increase in the
occupancy rate by 7.5 percentage points. Regardless the review score, the number of reviews has a
positive effect, but with decreasing returns, implying that the higher the number of reviews, the lower
the beneficial effect in terms of occupancy rates is.
Practical implications – The findings quantify the strong association of online reviews to
occupancy rates suggesting the use of appropriate reputational management systems to increase hotel
occupancy and therefore performance.
Originality/value – A major contribution of this paper is its comprehensiveness in analyzing the
relation between online consumer reviews and occupancy across a heterogeneous sample of hotels.
Keywords Hotel industry, EWOM, Online marketing, Pricing, Hotel performance, Occupancy rate
Paper type Research paper

Introduction
Consumers have very limited direct information on quality for products that are bought
sporadically or for products purchased at a distance. For this reason, they often rely on International Journal of
Contemporary Hospitality
external sources. For a considerable time, professional reviewers were the main external Management
source of information, but their reach in large dispersed markets was limited and not Vol. 28 No. 9, 2016
pp. 2035-2051
perceived as independent by consumers (Mauri and Minazzi, 2013; Sparks et al., 2013). © Emerald Group Publishing Limited
0959-6119
Online user-generated content has replaced professional reviewers. This new source of DOI 10.1108/IJCHM-05-2015-0238
 IJCHM information on the one hand offers a richer and more varied set of reviews with a
28,9 significantly wider coverage of products. In addition, it brings into the framework
heterogeneous tastes and standards of the reviewers.
Recent studies have appeared quantifying the influence online reviews can have on
the purchases of movies (Dellarocas et al., 2007; Duan et al., 2008), music (Chintagunta
et al., 2010) and, to some extent, hotels (Ye et al., 2014; Anderson, 2012; Öğüt and Onur
2036 Taş, 2012; Kim et al., 2015a). This paper intends to measure the association of
user-generated content (online reviews) to hotel occupancy rates.
The hotel product is a service that is bought in advance of usage, usually without any
direct visual evaluation. However, it is significantly more expensive than buying a book
or watching a movie. In this regard, consumers spend a substantial amount of time
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going through reviews, contributing to the success of online review websites, such as
Tripadvisor, valuated $13bn at the time of writing. Therefore, hotel managers should
strive to understand how reviews posted online affect the consumer decision-making
process and in turn the effect on hotel performance.
Research on the specific impact of the dimensions of online reviews on hotel performance
is still limited. Ye et al. (2014) in a first attempt to uncover such relationships used, as a proxy
of sales, the number of reviews. Recently, Kim et al. (2015a) took the research further by
examining the impact of an aggregate measure of online reviews on some financial
indicators [revenue per available room (RevPar) and average daily rate (ADR)]. Nonetheless,
for the challenging task of collecting individual property data from different types of hotels,
they obtained data only from hotels of a single company, suggesting further research to
measure the generalizability of their findings.
This study proposes an analysis of the association of different sources of electronic
word-of-mouth (eWOM) to hotel occupancy rates. Moreover, we introduce a time lag
between the online review data collection time and the occupancy rate data collection
time, accounting for the misalignment between booking date and check-in date.
Occupancy is a performance variable of paramount importance in a sector characterized
by perishable assets (Bilotkach et al., 2015), and, compared to other performance
measures, using this indicator allows the researchers to measure the elasticity between
this volume dimension and a variation of prices (hotel rates).
A set of consumer opinions was obtained from three of the most used online review
websites in Italy: Booking.com, Tripadvisor and Venere.com. The final data set merges
the occupancy levels of 346 hotels in the city of Rome with three dimensions of online
reviews (i.e. rating/score, variance and volume) and other control variables.

Literature review
Word-of-mouth concepts and the internet
Before the advent of information technology, word-of-mouth (WOM) marketing meant a
consumer spreading the experience among friends and relatives. Marketing researchers
have long studied WOM demonstrating its powerful influence on perceptions,
expectations and customer behaviour (Webster, 1991; Zeithaml et al., 1993). WOM can
be a source of information before the purchase (input WOM) and after the experience
(output WOM) (Buttle, 1998). In particular after the experience customers can offer
information and recommendations to other people. Coming from peers, WOM is
generally considered more credible than advertising (Stern, 1994; Ogden, 2001).
 The concept of WOM has changed with the development of the internet (Buttle, 1998; Hotel
Cheung and Thadani, 2012). In particular, the increase of social media adoption and occupancy
online bookings has made WOM much more efficient and observable. rate
Moreover, wireless and mobile systems allow people to share more easily their
experiences in the online environment (Buhalis and Law, 2008; Inversini et al., 2010). It
follows that consumers have increased the action of posting their comments in online
environments (Kim et al., 2015b). 2037
Recent studies have identified two different kinds of online/electronic WOM
(eWOM): “organic/intrinsic” and “amplified/extrinsic” (also called “exogenous WOM”).
In the first case, WOM occurs spontaneously by the customer, whereas in the second
case the company stimulate customers to hasten the spread of WOM (Godes and
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Mayzlin, 2004; Libai et al., 2010).

The perception of eWOM credibility is affected by informative cues, such as
argument strength and source credibility (Zhang and Watts, 2008; Cheung et al., 2009)
and by normative cues, i.e. recommendation consistency and recommendation rating
(Cheung et al., 2009). Consumers use these cues to determine if eWOM is trustable.

Electronic word-of-mouth impacts on purchases

eWOM has an impact on customer attitudes and consequently on booking/purchase
intentions (Park et al., 2007; Doh and Hwang, 2009; Ladhari and Michaud, 2015; Book
et al., 2015). Some studies in the marketing field demonstrate that companies’ financial
performance can be affected by online reviews (Chevalier and Mayzlin, 2006; Liu, 2006;
Dellarocas et al., 2007; Cheung et al., 2009). The same topic has been examined in relation
to the service sector and especially with respect to the hospitality sector. Research shows
that online content and recommendations generally inform searching, travel planning
and purchase decisions (Gretzel and Yoo, 2008; Litvin et al., 2008; Papathanassis and
Knolle, 2011; Vermeulen and Seegers, 2009; Ye et al., 2009 and 2011). According to a
study on the state of social media (Nielsen, 2013), 70 per cent of the interviewed
consumers indicated they trust online consumer reviews. A relevant research question
concerns the ability of online reviews to communicate actual product quality. People
who post online feedback had generally extreme positive or negative experiences (Litvin
et al., 2008). In particular, Anderson (1998) showed that extremely dissatisfied
customers produce greater WOM than very satisfied customers. On the contrary,
customers who underwent moderate experiences are less interested in reporting their
perceptions online (under-reporting bias) (Hu et al., 2009). Nevertheless, a study by
Banerjee and Fudenberg (2004) suggests that the reporting-bias tendency to post
extreme ratings rather than average ones does not lessen the effect of WOM for perfect
social learning. Consumers tend to average these extreme ratings when making
judgments and this average is close to the real quality of the product. Another criticism
involves online reviews reporting subjective evaluations and perceptions of quality by
consumers (consumer bias). This is especially true in cases of one-dimensional ratings
that do not allow for differentiating the evaluation of various dimensions of quality (Ye
et al., 2014). This perception of bias can affect the credibility and effectiveness of eWOM.
However, also in this case, previous research (Banerjee and Fudenberg, 2004; Hu et al.,
2009) suggests that online users of social media are generally smart and aware of these
biases and look for multiple sources.
 IJCHM Especially in online complex decision-making processes, consumers rely on
28,9 information that is accessible and easy to process (Sparks and Browning, 2011).
Purchases in the hotel industry are subject to product uncertainty and to asymmetric
information because of the impossibility to evaluate hotel performance before
consumption (Ba and Pavlou, 2002). The concept of asymmetric information goes back
to Akerlof (1970), who clarified how the scarcity of information of a buyer compared to
2038 a seller creates uncertainty regarding a product.
To cope with this uncertainty, consumers evaluate several attributes and consult
diverse information sources to assess the credibility of the message (Jun et al., 2007;
Nicolau and Sellers, 2010). In particular, dual process theory (Cheung et al., 2009)
considers how information contained in the message (central route factors) and online
social mechanisms (peripheral route factors) can affect the persuasiveness of online
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recommendations. Despite reading reviews may help customers in their choice process
(Dellarocas, 2003), information search is an activity that is both costly and time
consuming. For these reasons, consumers are inclined to use numerical ratings which
are easy to process. In a recent study that tested for several dimensions of online
reviews, the impact of numerical cues was shown to be predominant (Zhao et al., 2015).
Because central factors such as information contained in the review and review depth
are less relevant for experience products in light of the high subjectivity of the message
(Mudambi and Schuff, 2010), for the purpose of this study we decided to investigate the
first stage of the decision: peripheral route information processing.
The hypotheses of our study are explored in detail below.

Hypotheses development
The present study wants to investigate the association between some peripheral cues
used by consumers and hotel occupancy by testing the impact of product ratings,
eWOM consistency (the variance of consensus about a product) and eWOM volume. The
conceptual model is illustrated in Figure 1.
The average score contributes to the creation of a ranking that in hospitality,
according to Filieri and McLeay (2014), is considered one of the most relevant
antecedents of information adoption. Customer rating dynamics have a direct effect
on product sales (Moe and Trusov, 2011); therefore, they can significantly increase
hotel online sales and pricing (Öğüt and Onur Taş, 2012), making online
transactions less risky (Ba and Pavlou, 2002). With respect to star rating, online
customer rating is increasingly considered by potential consumers as a signal of

eWOM
score H1

ONLINE eWOM H2 HOTEL

REVIEWS consistency OCCUPANCY

Figure 1.
H3 (a, b)
The conceptual eWOM
model volume
 quality (Öğüt and Onur Taş, 2012). This implies that online customer rating might Hotel
be strongly associated to hotel occupancy. Therefore, our first hypothesis suggests occupancy
a relationship between this eWOM dimension (score) and hotel occupancy rate:
rate
H1. The higher the online review scores, the higher the hotel occupancy will be.
Another component of online reviews is recommendation consistency, i.e. the level of
variance of opinions about a product (Ye et al., 2009; Moon et al., 2010; Sun, 2012). The 2039
consensus taken from reviews on the topic, coming from the balance of positive and
negative comments, enables potential consumers to more confidently consider each
alternative (Tsao et al., 2015). Sun (2012) suggests that a high standard deviation in book
ratings is strongly related to lower book sales. Similar findings are found in the movie
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industry (Moon et al., 2010) and in the hospitality industry (Ye et al., 2009). Nonetheless,
Kim et al. (2015a) did not find a significant effect of the standard deviation of overall
ratings on hotel performance.
Considering these contrasting results, an interesting point is investigating if the
variation of opinions has an effect on hotel occupancy. The general theoretical
framework makes clear that consumers rely on reviews to reduce uncertainty and to find
credibility signals. The argument presented here is that substantial variability in the
message does not solve this uncertainty. Therefore, this research suggests that:
H2. The higher the variance of opinions, the lower the hotel occupancy will be.
Volume is another dimension of eWOM. It is generally analyzed through the number of
reviews posted by consumers on a particular product, company, brand or destination
(Godes and Mayzlin, 2004). If consumers find a greater number of reviews, they could
infer that lots of people have purchased the product (Park et al., 2007) and, therefore,
reduce feelings of anxiety when making a purchase decision (Chatterjee, 2001). A higher
quantity of online reviews has a positive influence on customers’ perceived credibility
(Fan et al., 2013) and is generally associated with a higher probability to find the kind of
information the consumer is seeking (Filieri, 2015). This dimension is considered in
different ways depending on the kind of traveller (novices vs experts) (Park et al., 2007)
and the types of segments (Blal and Sturman, 2014). Nonetheless, there is an on-going
debate in the literature as to whether the number of reviews plays an active role in the
decision-making process and purchasing decisions. On the one hand, according to the
findings of Filieri and McLeay (2014), the traveller does not take online review quantity
into account during the decision-making process. Similarly, Kim et al. (2015a) show how
the volume of reviews does not have a global effect on hotel performance (measured as
ADR and RevPar).
On the other hand, review volume was shown to increase the awareness of the
product, with the effect of positively influencing product popularity and sales (Chevalier
and Mayzlin 2006, Liu 2006, Duan et al., 2008), sometimes even in the case of negative
reviews (Vermeulen and Seegers, 2009; Viglia et al., 2014). This implies that review
volume will boost the level of occupancy, regardless the score of the review. Social
norms might explain this phenomenon, as an alternative might be considered attractive
just because it is popular.
The volume of reviews should be related to hotel performance, when measured by
means of occupancy rates but only within certain boundaries. More precisely, we posit
that the number of reviews is a crucial variable taken into account by the consumer, but,
 IJCHM when many reviews are already present, the effect of additional reviews is only marginal
28,9 (i.e. decreasing effects). Therefore, we posit that:
H3a. Regardless the score of the review, the higher the number of reviews (volume),
the higher the hotel occupancy will be.
H3b. The impact of the number of reviews (volume) on occupancy rates decreases as
2040 the number of reviews increases (decreasing returns).

Other factors
Other factors affecting hotel occupancy rates can be considered by travellers during the
decision process and are included in our empirical model as control variables.
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A first factor is hotel rate (price). Ye et al. (2014) examined how product price
influences post-purchase perceptions and in turn consumer reviews. Li and Hitt (2010)
conceptualized this phenomenon suggesting that consumer benefits come from the
difference between the utility derived from product quality and the actual price paid. It
follows that a company, by simply reducing its price level, can increase its occupancy.
Another factor to be considered is hotel category (e.g. star rating) established by local
authorities to evaluate hotel quality. Some studies have demonstrated a lack of
correspondence between star rating and the actual quality offered by the hotel according
to customer expectations (Lopez Fernandez and Serrano Bedia, 2004). Nonetheless, star
rating can be related to hotel performance indicators. While it is known that the level of
the category implies a different customer’s expectation and different prices (Zhang et al.,
2011; Ariffin and Maghzi, 2012; Ye et al., 2014), the effect of star rating on occupancy is
almost unexplored. The only study that measures this is the one of Öğüt and Onur Taş
(2012), which presents star rating and online reviews as similar constructs of quality.
Showing that having a high star rating does not drive hotel occupancy, the authors
conclude that eWOM is the most effective measure to increase sales.
Belonging to a hotel chain could be another factor that increases hotel occupancy.
Hotel chains have a well-known brand and can invest more money in marketing and
technological tools (e.g. loyalty schemes, a centralized booking engine, etc.), influencing
the awareness of the product with the final effect of driving sales (O’Neill and Mattila,
2010). This result deserves further investigation as some chains were shown to be
ineffective in bringing value (O’Neill and Xiao, 2006).
Other factors should be considered when analyzing hotel occupancy. The location of
the hotel, either in terms of urban and suburban dimension or in terms of city specificity,
is found to influence financial performance (Ye et al., 2009; Blal and Sturman, 2014).
Finally, some seasonality effects might drive hotel occupancy (Sourouklis and Tsagdis,
2013).

Empirical study
The main objective of the study is to identify, through regression analysis, H1, H2, H3a
and H3b, i.e. the effects of the different dimensions of online reviews on occupancy rates.

Sample
The empirical case presented in this research is based on occupancy rates, online
consumer reviews and other control variables for 346 hotels located in the city centre of
Rome, a popular travel destination in Europe.
 Two independent data sources were utilized. The first data set contains occupancy Hotel
rates obtained directly by contacting the 956 hotels present in the city centre of Rome occupancy
(EBTL, 2014). Of the total number of hotels, 346 consented to give us information about
their occupancy rates in terms of sold rooms. This implies a response rate of 36 per cent.
rate
We ensured hotels that responses would only be presented at an aggregate level. Table I
compares the final sample of hotels that took part in the analysis to the total population
of hotels in Rome. In our sample, we had no hotels of one-star rating. The problem of 2041
retrieving data from one-star hotels is well documented in the literature (Phillips et al.,
2015) and might be because of the scepticism of these hoteliers to give information for
research purposes. Aside from this, there is no apparent selection bias for the sample of
two to five-star hotels.
Our second data set includes online customer review ratings for the 346 hotels. It
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consists of a complete set of consumer ratings obtained from the three most influential
online travel review websites in Italy, namely, Booking.com, TripAdvisor and
Venere.com (Ali, 2014). All these review websites require the consumer to assign an
evaluation score of his/her experience (along various dimensions such as cleanliness,
service, etc). and have a scale of evaluation between 2.5 and 10 (Booking.com), between
1 and 5 (TripAdvisor) or between 1 to 10 (Venere.com). For the sake of homogeneity, all
the scores were converted into a 1-10 scale with the following transformation for each
rating of Booking.com and TripAdvisor (xi) in the data set: Vmax ⫺ Vmin) ⫻ (xi⫺ vmin)/
(vmax ⫺ vmin) ⫹ Vmin, where Vi are the values in the transformation scale (1-10), xi is the
empirical value to be transformed and vi are the values in the original scale (1-5). This
method adapted from IBM (2010) allows all the three variables to have an equal range.
These variables were then combined by means of a weighted average based on the
popularity of these online travel review websites in Italy, as provided by the competitive
intelligence metrics service SimilarWeb (Ali, 2014). This second data set also includes
the variability of the ratings in terms of review score as in Ye et al. (2009), and the total
number of reviews, as in Kim et al. (2015a). The measurement of the variability of the
reviews was derived by calculating the total review variance for each hotel i as the sum
of the variance within each single online travel review website for that hotel i and the
variance between online travel review websites for that hotel i. The same weighted
average, based on the popularity of the three online travel review websites, was used to
obtain the average number of reviews for each hotel i.
The average number of days between booking date and check-in date ranges from 14
to 21 days (Liu et al., 2014). For this reason, first we collected the average rate and the
three dimensions of reviews at hotel level for the last 15 days of October 2014 and,
second, we asked hotels to provide us with the occupancy rates of November 2014. The

No. of hotels in No. of hotels in Occupancy rate Occupancy rate

Category sample Rome in sample (%) in Rome (%)

One-star 0 0% 32 3.3% NA 48.0

Two-star 53 15.3% 199 20.8% 61.4 59.5 Table I.
Three-star 160 46.2% 355 37.1% 67.8 68.1 Number of hotels and
Four-star 103 29.8% 251 26.3% 67.6 69.8 occupancy rates in
Five-star 30 8.7% 32 3.3% 66.3 66.1 the sample and Rome
Total 346 100% 956 100% 65.4 62.3 average (2014)
 IJCHM monthly occupancy rate in November 2014 for each hotel in the competitor set is the
28,9 level at which we have the hotel data.
As discussed in the theoretical part of this research, occupancy is related to a
combination of several factors such as price, star rating, chain membership, location and
seasonality. Considering our specific setting, there is no great variability in terms of
location and seasonality but rather high variation in price, star rating and chain
2042 membership. For this reason, we collected these three factors and included them as
control variables. Table II presents the definition and the descriptive statistics of the
variables included in the analysis.

Analysis
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Because occupancy rates are bound within [0,1] intervals, the ordinary linear regression
model might not be appropriate for these kinds of data. However, the dependent variable
does not exhibit zero or one values and ranges between 0.29 and 0.9. The Shapiro–Wilk
test shows that the occupancy rates are normally distributed. An exploratory quantile
regression analysis between review score and occupancy rate did not detect
heterogeneity in the impact of the review scores for different levels of occupancy rate.
Thus, OLS can be used to estimate the occupancy equations.
The initial empirical model adopted is presented in equation (1). Because the relation
between online reviews and occupancy rates is close to logarithmical, we use the log
values for number of reviews. In this way, the dependent variable (occupancy rate) is
kept in its original scale. Equation (2) presents the same initial model but accounting for
quadratic effects of the number of reviews to test H3b. Finally, equation (3) introduces
the other factors (i.e. star, price, chain) that can influence the occupancy rate.

Type of
variable Variable Description Average SD

Core Occupancy rate Average room occupancy for each hotel i in 0.65 0.16
(dependent November 2014
variable)
Review score Weighted average review score (Booking.com, 7.75 0.92
Trip Advisor, Venere.com)
SD review Squared root of the total variance of scores 2.41 1.03
(within online travel agent and between online
travel agents) for hotel i
Number of Average number of reviews for each hotel i 195.55 107.29
reviews
Control Price The average lowest price of a single hotel 133.27 58.62
room across online travel agents
Star A dummy variable that equals 0 if the hotel 0.39
has two or three stars according to an official
organization regarding the quality of the hotel
and 1 if the hotel has four or five stars
Chain A dummy variable that denotes the hotel is 0.38
part of a chain company
Table II.
Variable taxonomy Notes: Chain is a dummy variable presented in percentage. Prices are in €
 Specifically, star is coded as a dummy that has a value of 0 if the star rating is two or Hotel
three and a value of 1 if the star rating is four or five. Price is included in the log form to occupancy
linearize the relationship between price and occupancy because the impact of prices on
occupancy decreases for high levels of the variable. The research also measures a
rate
possible interaction effect between price and star rating in terms of occupancy rates, as
highlighted in the theoretical part of this research. Chain membership is coded 1 if the
hotel is affiliated to a franchise brand and 0 otherwise: 2043
Occupancy Ratei ⫽ ␤0 ⫹ ␤1ReviewScorei ⫹ ␤2StDevReviewi
⫹ ␤3log(Number Of Reviewsi ) ⫹ ␧i (1)
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Occupancy Ratei ⫽ ␤0 ⫹ ␤1ReviewScorei ⫹ ␤2StDevReviewi

⫹ ␤3log(Number Of Reviewsi )
(2)
⫹ ␤3log(Number Of Reviewsi )2 ⫹ ␧i

Occupancy Ratei ⫽ ␤0 ⫹ ␤1ReviewScorei ⫹ ␤2StDevReviewi

⫹ ␤3log(Number Of Reviewsi ) ⫹ ␤4log(Number Of Reviewsi )2
⫹ ␤5log(Pricei ) ⫹ ␤6Stari ⫹ ␤7Star ⴱlog(Pricei ) (3)
⫹ ␤8Chaini ⫹ ␧i

Hypotheses testing
Table III shows the estimated coefficients of Models 1-3.
Among the three elements of online reviews, review score (␤1) has the most
significant effect on occupancy (p ⬍ 0.001). The coefficient associated with the review
score suggests that a one point increase in the 1-10 average review score across online
platforms is associated to an occupancy boost of nine percentage points, fully
supporting H1. Contrarily to expectations, H2 does not find support because the
standard deviation of the reviews (␤2) did not have a significant effect on occupancy.
H3a is verified by the data because a higher number of reviews (␤3) are associated with
higher hotel occupancy.
The second model unpacks the impact of the number of reviews for different levels of
the variable. The impact of the number of reviews is positive in both Model 1 and
Model 2, but in Model 2 the significant negative coefficient associated to the squared of
the log of number of reviews (⫺0.174, p ⬍ 0.05) indicates that the impact of the number
of reviews decreases for high levels of the variable as predicted by H3b. The adjusted R2
squared of these models suggests that almost 40 per cent of the variation in occupancy
rates (37.2 and 39.1, respectively) is explained by these variables.
As for Model 3, the extended model that accounts for the control variables, review
score is still associated to a 7.5 boost in occupancy. As might be expected, Log (Price) has
a significantly negative impact on the number of online booking levels (⫺0.088, p ⬍
0.01). Being a two- or five-star hotel has a negative effect on occupancy rates (⫺0.159,
p ⬍ 0.01 and ⫺0.094, p ⬍ 0.10, respectively). This suggests that increasing the star
rating does not have a direct association with occupancy levels. The positive interaction
between Log (Price) and Star (0.031, p ⬍ 0.01) suggests that consumers are willing to
book a hotel that costs more but only if the star rating is high.
 IJCHM (1) (2) (3)
28,9 Variables Occupancy rate Occupancy rate Occupancy rate

Review score 0.090*** (0.007) 0.089*** (0.007) 0.075*** (0.007)

SD review ⫺0.001
(0.001)
2044 Log (number of reviews) 0.079*** (0.010) 0.421*** (0.087) 0.402*** (0.083)
Log (number of reviews)2 ⫺0.170*** (0.043) ⫺0.165*** (0.041)
Log (price) ⫺0.080*** (0.020)
Two stars ⫺0.158*** (0.047)
Four stars ⫺0.0120 (0.018)
Five stars ⫺0.094* (0.052)
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Star ⫻ log (price) 0.031*** (0.009)

Chain 0.005 (0.012)
Constant ⫺0.520*** (0.076) ⫺0.522*** (0.074) 0.031 (0.132)
Observations 346 346 346
Table III. R2 0.372 0.391 0.535
OLS estimates of the
determinants of the Notes: OLS with heteroscedasticity consistent standard errors; in Model 3, two stars, four stars and
occupancy rate five stars are dummy variables and their coefficients have to be interpreted as differentials from the
(Models 1-3) baseline (three stars); standard errors in parentheses; *** p ⬍ 0.01; ** p ⬍ 0.05; * p ⬍ 0.1

To better disentangle the effect of star rating and review score on occupancy, Figure 2
presents the effect of review score on occupancy for different levels of star rating.
In Figure 2 it can be seen how the variable review score has a strong relation to
occupancy rates for the different levels of star rating. Interestingly, there are some
differences on this impact across levels of star rating. For instance, a two- and a five-star
hotel with a low review score are penalized more in terms of occupancy than other hotel
belonging to a different star rating group.

Figure 2.
The impact of review
score on occupancy
rate controlling for
the levels of star
rating
 The adjusted R2 of Model 3 highlights that when adding our control variables, the Hotel
regression is able to improve its performance by explaining the 53.5 per cent of the occupancy
variation in the occupancy rate. Multicollinearity was checked. No significant
multicollinearity problem existed, based on the variance inflation factor, because its
rate
values ranged from 1.02 to 2.61, well below the common threshold of 10 (Hair et al., 1992).

Discussion and conclusions 2045

Conclusions
A salient contribution of this research comes from measuring the relation between
online user-generated reviews and a dimension of business performance (hotel
occupancy) that is relevant because of the intrinsic nature of this perishable asset
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(Bilotkach et al., 2015). This study makes use of comprehensive data coming from
different types of hotels and multiple online review platforms to improve the validity
and generalizations of the findings.
By increasing the number of online review platforms, results are more accurate because
different platforms are able to capture diverse groups of hotel guests (Kim et al., 2015a) and
even the same customers are generally looking for multiple cues before making a purchase
(Noone and McGuire, 2013).

Theoretical implications
This study shows the association between online reviews and hotel occupancy
providing theoretical and practical knowledge on this topic. In particular, the main
result is that a one point increase in the converted 1-10 average review score across
online platforms is associated to an increase in the occupancy rate of 7.5 percentage
points. This suggests the inclusion of online review considerations in established
models of hotel profitability, such as the one of Sainaghi (2010). The findings contribute
to the existing literature on eWOM by analyzing a less explored hotel performance
indicator (hotel occupancy) by means of a comprehensive methodology that considers
different kinds of hotels and various online review sources.
A major finding of the study is that the crowd (i.e. the number of reviews) is relevant
for lower values of the variable and regardless the score of the review. This suggests
that popularity per se has a strong relevance in terms of social preferences.
Another contribution is suggesting that eWOM and star rating are two completely
separate constructs of quality because star rating, which appears to justify different
price levels, is not clearly associated to occupancy. This last result opens new theoretical
challenges for the current literature that has theorized eWOM rating and star rating as
similar measures of quality (Öğüt and Onur Taş 2012).
Our findings suggest that the number of reviews do count for hotels with a small
number of reviews, implying that credibility issues might arise if the hotel has very few
reviews. This result reconciles past contrasting findings on the impact of the number of
consumer reviews (Ye et al., 2009; Blal and Sturman, 2014; Viglia et al., 2014; Kim et al.,
2015a).
Surprisingly, no effect between the variability of consumer reviews and hotel
occupancy rates are observed. Interestingly, by looking at the hospitality literature, Ye
et al. (2009) found a significant effect of variance, whereas more recent literature does not
consider the effect (Blal and Sturman, 2014) or does not find any effect (Kim et al., 2015a).
This recent shift towards the low relevance of variance in online reviews might be
 IJCHM explained by the presence of multiple platforms with an increased complexity for the
28,9 consumer to account for variability of reviews within the same online review platform
and between online review platforms. Another possible explanation is that a small
degree of variance between positive and negative reviews might even reduce the
consumer perception of possible suspicious behaviour of hotels to influence the message
(Doh and Hwang, 2009). In sum, moderate review variability should not be a source of
2046 great concern for hotels.

Practical implications
Research portrays that the social media strategy is hardly integrated with the general
business strategy of a company (Law and Jogaratnam, 2005; Law et al., 2008), despite
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such integration would be beneficial (Viglia, 2014; Minazzi, 2015) Web 2.0 now offers
firms a large amount of data to improve customer profiling. eWOM is a viable
alternative to the engagement of an expensive process aimed at upgrading the star
rating. This latter quality certification in fact does not appear per se to have a clear
impact in terms of hotel occupancy, at least for three-, four- and five-star hotels.
The boost in terms of occupancy given by a unit increase of the online review score is
of the same positive sign and comparable in absolute terms with the ones from
Anderson (2012) and Kim et al. (2015a). These findings were robust across independent
hotels and hotel chains. One recent study measures the effect of investing in e-commerce
for the individual performance of hotels (Hua et al., 2015). These results suggest that an
investment to manage user-generated online content is of paramount importance in the
hotel sector. Hotel managers may implement an online reputational management
system to actively monitor the hotel’s reputation to timely spot emerging criticisms in
online consumer reviews. A well-integrated communication strategy can help hoteliers
to create a direct relationship with consumers and prospects before, during and after the
trip, stimulating a sharing activity of user-generated content (Mangold and Fauld, 2009;
Noone et al., 2011; Kimes, 2011).
Considering the positive relation between the number of reviews and hotel
occupancy, hotels should designate staff members to increase the awareness of the hotel
especially when the number of reviews is below the average of the market.

Limitations and suggestions for future research

This study is not without limitations. The main limitation of the study is that because of
difficulty with retrieving individual occupancy data, it explores only one city in detail.
By controlling for the level of prices as in Ye et al. (2009), this paper makes use of an
output occupancy, which does not incorporate price levels. Using other common
financial hospitality metrics, RevPar and ADR, would have allowed measuring the
impact in terms of actual profit, but it would have created issues of multicollinearity
with price levels.
This paper proposes the association between several dimensions of online consumer
review and occupancy rates without claiming causation. There is an inherent difficulty
in establishing causality between WOM and purchases. Purchases could be higher as a
result of the product’s quality, which eventually increases the online consumer review
ratings. Eliashberg and Shugan (1997) bring out this aspect and indicate that online
reviews are predictors rather than influencers of product sales. In further studies, it
would be interesting to test whether reviews are a function of price or independent from
 it, which would have different consequences for hotel dynamic pricing strategies. If they Hotel
are independent, hotels can raise prices if they get good reviews without losing occupancy
consumers; if not, hotels should be more cautious with respect to changing prices. rate
Future research can also go beyond longitudinal data, testing the influence of online
review information at t⫺1 with those at t⫺2 and identifying exactly which period of
online reviews has more effect on hotel performance at time t.
2047
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Corresponding author
Giampaolo Viglia can be contacted at: giampaolo.viglia@gmail.com

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