How Word-of-Mouth Moderates Room Price and Hotel Stars for Online Hotel Booking an Empirical Investigation with Expedia Data

Abstract

ABSTRACTInformation cues about products influence consumer purchase decisions. Online review can enhance communication among consumers while affecting consumer perception by increasing awareness and reducing uncertainty. However, little is known on how Word-of-Mouth (WOM) and information cues interact, especially on experience goods like hotel rooms. To bridge this gap, we analyze data collected from Expeida.com and use actual booking numbers to measure sales performance instead of proxy approaches employed by previous researches. This research investigates the negative effect of WOM on information cues, namely room price and hotel star rating, to hotel online sales performance. Moreover, we confirm that room price and hotel star rating can have negative and positive impacts on hotel online booking respectively. If hotels receive positive WOM, their online sales performance is less likely to be influenced by room price and star rating. However, for hotels receiving negative WOM, their oMine sales performance is more likely to be influenced by room price and star rating. These findings will help researchers and industry practitioners better understand the impact of online WOM in an electronic commerce context.Keywords: Word-of-Mouth (WOM), price, Hotel star rating, IMonnation cue, Electronic coimnerce(ProQuest: ... denotes formulae omitted.)1. IntroductionConsumer reviews can be a good proxy for Word-of-Mouth (WOM) and can influence consumers' purchase decision [Zhu 2010]. The emergence of oMine review platforms provides useful references for potential consumers before consumption [Chevalier & Mayzlin 2006; Hu et al. 2009; Liu 2006; Senecal & Nantel 2004]. Breaking out of the limited geographic boundaries and time span of conventional WOM, oMine WOM can be searched and read anywhere at any time [Liu 2006]. In addition, under some circumstances, oMine WOM is measurable since consumers can score the products on these platforms [Park & Kim 2008], which provides an ideal environment for research.Prior studies show that consumers tend to rely more on the recommendations of others when purchasing experience goods versus search goods [Park & Lee 2009; Senecal & Nantel 2004; Weathers et al. 2007], which makes WOM management especially important for hotels [Ye et al., 2009; Ye et al., 2011]. First, like other experience products, the quality of hotels cannot be determined until consumption, which makes consumers incline to seek information from WOM. Second, during the consumption process, consumers take a lot of involvement, which makes them more likely to generate WOM after consumption [Stokes & Lomax 2002]. Third, the unique features of hotel product may be affected by WOM differentiated from other experience products such as books or movies. Comparing to books and movies, even though hotel rooms is more like a perishable product, the lifeline of hotels is much longer, so reviews may be posted in less density.Since consumers seek information to increase the awareness of product and reduce risk of purchase, they may need other intrinsic and extrinsic cues as well. Whereas extant studies have shown information cues such as product price and star rating affect consumer cognition towards product quality, empirical evidence provides little on how they may be affected by WOM and influence the sales performance in an online context, especially on experience goods like hotel rooms. This study mainly focuses on the moderating effects of online WOM on room price and hotel star rating in hotel online sales.One challenge for most empirical research on WOM is that real-time sales data is often hard to collect. Prior studies use proxy approaches to represent sales performance [Chevalier & Mayzlin 2006; Duan, et al. 2008; Ye, et al. 2009], for example, using the number of online reviews as a proxy for the number of online booking. Using a newly introduced special function provided by Expedia website, we are able to collect actual hotel booking data from Expedia, and demonstrate the interesting effect of WOM on hotel online sales performance. …