Sales Channel Choice in the Hotel Industry: The Impact of Online Reviews

Abstract

In this study, we investigate a hotel's sales channel choice when incorporating the impact of online reviews posted on the platform of the online travel agency (OTA) with which the hotel is cooperating. Online reviews can help to update potential consumers’ uncertain valuation of a hotel and, consequently, affect the hotel's sales channel choice: the hotel direct channel only, the OTA channel only, or both (the dual-channel). We find that the availability of online reviews can have either beneficial or detrimental impacts on the hotel's profit and, thereby, exert a significant influence on the hotel's sales channel choice. Interestingly, when incorporating the impact of online reviews, a hotel can still be better off by cooperating with the OTA even if doing so does not increase the market size, which is contrary to conventional wisdom. More specifically, negative (positive) reviews do not always induce a hotel to cease (to continue) to cooperate with the OTA, depending on other conditions, such as the hotel's capacity, the consumers’ channel preferences, as well as the increase in market size associated with the OTA channel. The findings have important managerial implications for hoteliers in determining under what conditions it is worthwhile to cooperate with an OTA and can be generalized to other industries with similar retail settings.