Implications of Electronic Word-of-Mouth on Hotel Profitability: An Investigation beyond Room Revenue

Abstract

Interest has been growing in the financial impact of online reviews, an important form of electronic word-of-mouth (eWOM), on hotel performance. Existing research in this area is overwhelmingly focused on the relationship between online reviews and room-related revenue. For a more comprehensive understanding of online reviews’ financial impacts, this study investigates the value of these reviews relative to hotels’ non-room revenue, total revenue and gross operating profit (GOP). To the authors’ best knowledge, this study is the first to link hotels’ online reviews or any form of eWOM to GOP, a firm-level outcome. A panel dataset comprising the annual operating performance of 104 hotels in Asia was assembled and matched with 50,732 TripAdvisor reviews. Analyses indicated that review valence, variance and volume correlated to varying degrees with hotels’ GOP but demonstrated limited association with non-room revenue. Our findings also indicated that online reviews more strongly influenced room revenue and total revenue than non-room revenue and GOP. Overall, the positive effects associated with room revenue demonstrated selective generalizability to GOP. This in turn reflects the insufficiency of relying solely on room revenue indicators (i.e. average daily rate, occupancy and revenue per available room) to fully understand the impact of online reviews.